So what is behind Cryptocurrency Mania? The secret sauce is Bitcoin’s blockchain technology. Forget Bitcoin – the world will be revolutionised by blockchain, not necessarily cryptocurrency.
The furore over the future of cryptocurrencies such as Bitcoin has reached ever more frenzied peaks since the start of the year.
Goldman Sachs recently predicted that most cryptocurrencies will inevitably crash to zero and the head of the World Bank has warned that most resemble Ponzi schemes.
Meanwhile, internet entrepreneurs turned venture capitalists the Winklevoss twins have said they expect Bitcoin to soar to 40 times its current value. (See page footnote)
That blockchain – the underlying technology behind Bitcoin and other cryptocurrencies – is poised to revolutionise the way the world does business in much the same way email and the internet did.
But the trouble is there hasn’t been a high-profile use case that has shown how blockchain can fundamentally alter the way companies do business or touch a facet of life the man on the street can relate to.
THE POWER OF BLOCKCHAIN
The innovative power of blockchain is that it creates a platform allowing any two parties to digitally transact with each other using an immutable, continuously-updated, distributed ledger.
In the case of Bitcoin, with no central authority overseeing the system, the task of updating the ledger relies on miners who verify transactions and get rewarded with Bitcoins.
On average, a new block on a blockchain gets verified every 10 minutes and carries a reward of 12.5 newly created Bitcoins as a form of incentive. The entire supply of Bitcoins – which will peak at 21 million in 2140 – is pre-programmed by Bitcoin’s original developers.
Just as the invention of the underlying technology behind email enabled the transfer of information from one user to another, blockchain enables the transfer of value from one user to another without the need for an intermediary like a bank.
This has huge implications for traditional intermediaries such as auditors, lawyers or public notaries, and without radical transformation, entire industries face a very real existential threat.
For example, most e-commerce currently relies almost exclusively on third parties such as Visa or PayPal to process electronic payments, charging transaction fees of up to 5%. Overseas money transfer firms like Western Union and MoneyGram charge even more – often over 10%.
These industries seem ripe for disruption and with the growth of blockchain the fate of financial remittance companies may resemble the demise of travel agents in the 1990s.
At a national level meanwhile, a growing number of countries are exploring how to put their currencies on Blockchain.
For example, the Monetary Authority of Singapore (MAS) recently partnered with a consortium of banks to develop Project Ubin, a pilot tokenised version of the Singapore dollar that replicated the existing financial payment system without a centralised clearing system.
It is now working on similar projects focused on fixed income securities trading and cross-border payments.
It seems that certain banking functions, for instance, payments and cross-border transactions may be put on a blockchain going forward, reducing infrastructure costs while enhancing transparency, traceability and security in the financial services sector.
But blockchain technology has applications well beyond the finance industry.
Indeed a recent Harvard Business Review article said blockchain “could change the very nature of economic, social, and political systems.” The article’s authors, both Harvard professors, said they foresee a world where “every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored and shared”.
By allowing businesses to control their own data, ensuring immutability and transparency, it offers transformational potential in areas such as inventory control, food safety and record management, including medical records.
In January, IBM and Danish shipping giant Maersk announced a joint venture to use blockchain in shipping supply chain. In a sector which handles around U$4 trillion of goods per year, the firms said they expected savings of up to 15% of this amount, mostly by eliminating the bureaucracy and corruption risk in manual procedures.
Another area where blockchain shows significant promise is food safety.
Recently Walmart launched a pilot in China using blockchain to track and trace shipments of pork. Making food supply chains transparent and traceable brings a range of potential benefits – for example, while it normally takes days to recall a food product, blockchain can do it in seconds.
Source: CNA/SL (Language corrections and edits by Crypto News Inc)
Crypto News Inc Addition:
The Winklevoss twins are American Internet entrepreneurs, Cameron Winklevoss and Tyler Winklevoss. They are also known as the American Olympic men’s rowing team who competed at the 2008 Beijing Olympics.