For the past decade, an insurgency has been quietly sweeping across the digital ecosphere. Meet blockchain, the digital insurgent that’s been gaining international traction. Since its inception in 2009, this technology has been steeped in mystery.
Blockchain is a digital ledger that serves as a permanent record of transactions spread out among a vast network of computers. It’s a decentralized system that experts say will transform the way we view how data is shared. As a shared ledger, blockchain involves the democratization of data, ensuring transparency and the ability to own assets digitally across boundaries. To be sure, this groundbreaking technology has set the stage for a variety of new business models, all in the world of digital cryptography. In fact, cryptocurrencies were the first industry to make use of blockchain.
Creation of Bitcoin
The earliest cryptocurrency was bitcoin, launched in 2009 as an unregulated currency wholly dependent on blockchain. Bitcoin was conceived in 2008 by a nebulous figure known only by their pseudonym Satoshi Nakamoto. Appearing in a paper entitled Bitcoin — A Peer-to-Peer Electronic Cash System,” the proposed currency was envisioned as a decentralized approach to traditional currency. It would eliminate from the equation third parties like governments and financial institutions.
Nakamoto’s paper depicts bitcoin as fundamentally inseparable from Blockchain. It goes on to describe an individual bitcoin as a single unit of electronic currency that acts as “a chain of digital signatures.” Each of these signatures verifies a given transaction. The process of signature verification followed by its addition to the Blockchain ledger is called “bitcoin mining.”
In the Blockchain world, bitcoin mining is as real as mining for gold is in the “real” world. Each scenario imagines a finite supply. According to bitcoin protocol, 21 million bitcoins are supposed to exist at some point, and once they’ve all been mined, bitcoin’s supply will have been depleted unless its protocol is amended. However, whether they ever reach the limit depends on various factors such as transaction fees, mining costs, and competition.
A Ton of Cryptocurrencies
Bitcoin merely skims the market’s surface. Right now there are more than 1600 cryptocurrencies. And given the relative ease for people who know simple coding to form a digital currency, the list will only get longer.
Governments Don’t Back Cryptocurrencies
Cryptocurrencies aren’t backed by any government or institution. Specifically bitcoin, by far the most widely-used cryptocurrency, has earned the animus of many governments because it doesn’t conform to any established fiscal policies. Governments for one thing want to maintain the power to track currency movements so they can determine who owes taxes on them and how much. They also want to be able to make it easier to track criminal activity linked to cryptocurrencies.
Interestingly, governments have been entertaining the idea of issuing their own digital currencies. One reason is to crack down on digital tax evasion and other financial crimes. The idea is, ironically, attractive to certain autocracies unhappy with how they’re perceived by the global financial system.
Could Cryptocurrencies Compete With Banks?
There are those in government who fear that widespread use of cryptocurrencies, especially if they go mainstream, could put the entire banking system in jeopardy. Bank of America recently admitted that adopting a slew of fintech innovations like cryptocurrencies could prove costly as it moves toward revamping its current services in order to remain competitive with upstart companies. It also feels these emerging technologies could hinder its ability to help authorities in anti-money laundering operations. One thing it did in response was enact a rule prohibiting customers from using credit cards to purchase cryptocurrencies.
A Glimpse into the Future of Blockchain and Cryptocurrencies
While some governments have expressed a desire to ban or limit the use of cryptocurrencies, most are reluctant to do so. After all, an increasing number of companies like Microsoft, Overstock.com, Save the Children, OkCupid, Wikipedia, Tesla, Lionsgate Films, Dell, Dish Network, and Expedia accept Bitcoin. Policymakers find themselves grappling with how to handle such a disruptive yet increasingly popular technology. Given their brief history that has left us with more questions than answers, cryptocurrencies may have to be regulated by government.
Blockchain, meanwhile, has entered additional markets like the distributed storage market, which offers a potential challenge to the traditional cloud storage services business model. Other markets include healthcare and finance. The World Economic Forum released a report recently suggesting that by 2027 ten percent of this world’s gross domestic product (GDP) could be found on blockchain, indicating indeed that this technology is here to stay.
Concepts Rise is a consulting firm that helps businesses advance their bottom line through cutting edge technologies. For more information on blockchain and the rise of cryptocurrencies, please contact us.
Majid Abai – June 2018 – Los Angeles
About The Author:
Majid Abai is Managing Director of Concepts Rise, LLC. (www.ConceptsRise.com), a High-Technology and Innovation Consultancy based in Los Angeles, CA, USA. With over 30 years of experience in supporting US and global organizations, Mr. Abai focuses on strategic and tactical approach to use of innovation and technology to increase revenues and reduce costs for organizations. Majid could be reached at 424-320-0524 or via email at majid.abai@ConceptsRise.com.
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