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How The Bitcoin Revolution Is Reshaping The Global Economy
Within a decade, Bitcoin has changed currencies. In another decade, it might have changed the world.
A decade ago, an anonymous character with the name Satoshi Nakamoto sent a paper to a mailing list proposing a form of digital currency. What is this digital currency? Bitcoin.
This anonymous character still maintains this name and their true identity remains unknown. However, one thing is for sure, the concept of cryptocurrency is now well known and it is here to stay.
Since its inception, the price of Bitcoin has been on a rollercoaster ride. At the start of 2020, a single Bitcoin was worth under $1,000. By December 2020 it was worth $20,000 and it’s currently worth around $6,500.
For anyone that has invested in Bitcoin, it has certainly been a journey with some making millions in the height of 2020 and others making huge losses as the price has since fallen.
Who is currently using Bitcoin?
In the last quarter of 2020, about 10,000 businesses started to accept Bitcoin payments as a form of currency. More and more businesses are starting to accept Bitcoin, which is putting pressure on those that don’t.
It’s a bit like when businesses started to have card terminals. Those that were early adopters succeeded at the cost of those that remained reliant on cash.
One interesting country in the Bitcoin space is Australia. It has been a quick adaptor and looks set to benefit from its openness to currency competition.
The growth of cryptocurrency has been lightning quick and the Australia Stock Exchange looks set to benefit significantly as it opened its arms to cryptocurrencies as early as 2020.
As you might expect, Bitcoin leaders are those that already have an existing financial market that many people are part of. The United States has 6 out of the top 10 cities which are deemed to be “friendly to Bitcoin”.
Both Los Angeles and New York are in the top 3 cities which have adopted Bitcoin in a significant way. In Los Angeles, there were 878 businesses accepting Bitcoin, 145 Bitcoin ATMs and 45 blockchain meetups. New York, in comparison, had 561 businesses accepting Bitcoin.
The Bitcoin revolution is taking over financial centers across the world as London has also seen major growth recently with 118 businesses accepting Bitcoin at the end of 2020.
Are there any unexpected trends in the Bitcoin market?
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Perhaps surprisingly, Asian countries such as China and Japan are not seen as particularly friendly towards Bitcoin. They had very few businesses accepting Bitcoin, very few ATMs and hardly any meetups to discuss the concept.
In the case of China it may be a case of the Chinese President wanting to maintain currency controls as they have done in the past, however, Japan is surprising. Where the Asian countries do dominate however is the logistical side of Bitcoin. Both China and Japan dominate the Bitcoin mining industry. This is due to the size of the labor force, cheap electronics, and cheap electricity. Mining Bitcoin is incredibly energy intensive, so where electricity is cheaper, you will see miners.
Are cryptocurrencies here to stay?
Absolutely. At a time when people are becoming warier of government regulation, more people are moving towards cryptocurrencies.
Will Bitcoin be the first of many, or will it just be Bitcoin? I’m not entirely sure. But one thing is for certain, financial markets are sitting up and taking notes because cryptocurrencies are here to stay.
The blockchain technology plays different roles on many occasions, and its value has been unquestionably far beyond the concept of “crypto currency.” From making a bet with friends while watching World Cup, to buying a house, the blockchain technology is transforming our world. From the decentralization and de-intermediary to the tamper-resistance of data, every feature of the blockchain serves as a perfect solution to everyday problems.
It’s undeniable that blockchain technology has opened the door to a new world of technology possibilities. The main question being asked is exactly how blockchain technology will reshape our world and what are the extent of the changes it will bring to the tech sphere.
What’s Bitcoin and Blockchain Technology?
The Bitcoin is a kind of digital currency based on a smart encryption algorithm. Many wealthy tax-dodgers, anti-government activists as well as cyber criminals use it for illegal transactions.
The encryption technology that lays the foundation for Bitcoin is called the blockchain technology. The transaction system involved in blockchain technology is far beyond cash and currency. It provides a way through which individuals with little or no knowledge of each other can establish the assets records available to everyone. In a way, it is a truth defender.
The blockchain is a database that contains the records of each Bitcoin transaction. The technology allows copying of the distributed record in thousands of computers, namely Bitcoin “nodes,” which are available to all the people throughout the world and are highly reliable. Many sophisticated mathematical algorithms and the powerful computing power of “mechanism for consensus” support its operations. During operation, the nodes will update each Bitcoin transaction through the blockchain.
The blockchain technology has extensive use in the modern world. According to blockchain.info, a website that tracks the dynamically changing blockchains, ‘a daily average of approximately 120,000 transactions valuing $75,000,000 are written into blockchains.’ There are 380,000 blocks now, and the ledgers occupy approximately 45 Gb. Massive enough, right? Let us see how blockchain originated to create such an impact.
Evolution of Blockchain Technology
Satoshi Nakamoto, although unknown to many people, is believed to be the Bitcoin founder and man behind the concept of the blockchain. In 2008, Satoshi Nakamoto published a paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” The paper focuses on Nakamoto’s vision of a decentralized system and ways to accomplish the same. It also addresses how banks need to avoid traditional payment systems to create a decentralized system truly and replace reliable third parties.
Future of Blockchain Technology and Its Possible Applications
Blockchain technology has and continues to unlock new possibilities in different spheres and aspects of everyday life. Finance originally inspired Satoshi Nakamoto, so consequently, the first generation of enterprises to use blockchains were financial institutions. From its proven applications in finance, banking to smart property solutions to even rationalizing the stock market, the blockchain also plays a role in other fields. A report says that ‘The Nasdaq will soon enable an equity transaction platform based on the blockchain technology to record the transactions of private companies.’ In recent months, the technology has gained prominence within the domain of tamper-proof private blockchains. The reason is the technology developed by anti-government liberalists enables banks to meet the needs of governments well after knowing their clients and anti-money laundering rules. Following this, the Bank of England also acknowledged the significance of blockchain technology on the financial industry after remaining conservative for a long period.
In fact, during Paris OuiShare Fest conference (a global annual economic cooperation conference), the delegates discussed a more distant future of the blockchain, where the partners and leftists chewed over grassroots organizations and if they would shake massive databases like Facebook. The liberalists have been dreaming of the possibility of private contracts signed between individuals and contractors based on the blockchain technology can replace the increasing number of government regulations. Before going deeper into this discussion, let us see how blockchain emanated and rose to become a transformational technology.
Processing behind a Bitcoin Transaction
Let us say; a person X has to pay service fees to a person Y for the leveraged work. They both have their Bitcoin “wallets,” which are not browsers to connect web pages, but a software with blockchain access. Unfortunately, this system doesn’t recognize users. As X enables the wallet and processes transaction, the changed blockchain shows the reduced balance in X’s wallet and increased balance in Y’s wallet. The network executes these changes through a multi-step process.
The above diagram represents the multi-step process using an example. During these changes in the network, each node will confirm whether X has spent these Bitcoins by continuously checking the ledger. If there is no error, the miners responsible for Bitcoin network maintenance will pack and write X’s and other reliable transactions into a new block of the blockchain. For this purpose, the cryptographic hash function is required to break the block down into numeric strings with a given length to feed the data repeatedly.
About Hash Value and Hash Calculations
Each transaction in the set that makes up a block goes through a program that creates an encrypted code known as the hash value. A further combination of the Hash values occurs in a system referred to as a Merkle Tree. The result of all this hashing along with a hash of the previous block’s header and a timestamp goes into the block’s header. The header then becomes part of the cryptographic puzzle solved by manipulating a number called the nonce. Upon finding a solution, the system adds the new block to the blockchain.
Like many other types of encryption, the hash calculation is unidirectional. It is easy to calculate identical hashes by data, while impossible to calculate the data by hash. Although there is no data in a hash, each hash is unique. It is possible to change the content written into a block in different ways, such as by changing a byte, the corresponding hash will change accordingly, and written into the generated header. The header will re-export the math problem that the hash function needs to solve by itself. Miners of the whole network may find the answer through trillions of trials. If one miner gets the correct answer, other nodes will soon check it (this process is unidirectional: hard to solve but easy to check), and each node that has confirmed the answer will update the corresponding blockchain. The hash of a header serves as the identifying string of a new block, which then becomes a part of ledgers. The block then writes and confirms X’s payment to Y and other transactions. But we all wonder if these transactions are secured enough? Let’s find out in the subsequent section.
About Bitcoin Security
To guarantee Bitcoin security, the problem-solving phase introduces three essential features:
First, occasionality: it is impossible to predict which miner will solve the problem and update the blockchain at any specified time. Instead, only hardworking miners rather than any random intruders can solve the problem.
Second, history: Each new block includes the hash of the previous block which contains the hash of the last block until the creation block is connected. It is precisely like the interconnection that strings the blocks as a blockchain. It is dead easy to re-export all blocks from the genesis block of a blockchain. However, any changes in the places, such as returning to some block in the very early phase, will modify the subsequent blocks. The implication is that the modified block together with the following blocks will become different. The previous ledger will no longer match the latest block identification, thus making its rejection easy.
Is there any way to turn that around?
Taking the same example, if the person X changes the idea of making payment to Y, X has to re-write the history to keep her Bitcoin in the wallet. If X is a competent miner, she has to create a blockchain while solving relevant hurdles which will make other nodes to extend the original blockchain continuously. Ideally, nodes always trust the longest blockchain, a rule integral to prevent the dilemma that arises when two miners solve a problem at the same time, avoids the temporary bifurcation of blockchains, and eliminates cheating. Therefore, this needs a blockchain version longer than the original one. It is impossible to control more than half of the computers in a short period, the so-called “51% attack” in the industry.
Blockchain-based Products and Offerings
Currently, three trending blockchain-based products exist:
1: Transfer of different types of assets through blockchains.
A start-up company recently made a bet on this idea. The company has developed a mechanism that can adhere to extremely small Bitcoin transactions (the so-called “Bitcoin dust”) and represent bonds, stocks or precious metal units by binding the “dust” with additional data.
2: Protection of land ownership
A blockchain-based app is considered to be a fact machine. The ledger lets you insert data about bitcoin transactions combined with other pieces of information into the ledger. A recent news says that Everledger uses the blockchain to protect valuables. For example, it “attaches” some distinct features to the blockchain data to provide an irrefutable identification. Many applications such as ‘Onename’ stores the personal information by setting passwords, or ‘CoinSpark’ which specializes in “notarization.” It is noteworthy that although different from pure Bitcoin transactions, these applications still rely on the third-party service companies to store data.
3: A New Concept called Smart Contracts
One of the most ambitious applications of blockchain technology relates to its ability to execute “smart contracts” automatically in normal cases. Bitcoin is “programmable” and can play its role in certain conditions. One application of this capability is to pay the rewards to miners only after successful addition of more than 99 blocks – obtaining rewards after solving a problem is helpful to maintain the proper operation of blockchains.
Disadvantages of Bitcoins
Since blockchain is open and exciting, some people are skeptical regarding its security. They doubt that some security errors may occur leading to failures in extending the procedures. The developed Bitcoin and some small apps may not support thousands of services provided to tens of millions of users.
Although Satoshi Nakamoto’s delicate design has proved impregnable by far, academic researchers have come up with a way to prevent some furtive miners with questionable motives from directly controlling 51% computing power, so that they can maintain the blockchain obediently. In this way, it is less likely to control a large part of network resources than before, hence ensuring security.
Massive Energy Consumption and Impact on Environment
One of the major concerns here is the impact on the environment. The framework of Bitcoins forces miners to make such massive hard calculation, termed “workload proof mechanism.” If miners do not mine, there will be no reward to ensure that all Bitcoin-related parts will be involved in this game. However, this process produces a lot of meaningless calculations. According to blockchain.info, miners of the whole network are carrying out 450,000 trillion calculations every second, and each calculation consumes energy.
Although miners keep all the details of the utilized hardware, it’s hard to find out the actual electricity consumed by the network. Even after optimal usage of hardware, the annual electricity consumption is about two trillion watt-hours, which is more than that consumed by 15 million residents of Kings County in California’s Silicon Valley.
Satoshi Nakamoto has set the upper limit of each block at 1 Mb, which can accommodate about 1,400 transactions, with about seven transactions processed every second.
The capacity of a block is expansible, but a larger block needs more time for broadcasting to the network, which may increase the risk of bifurcation. If there is a fundamental contradiction in the blockchain, it stores the unchangeable past and present in an encrypted manner, but in the end, it leads us to a different future.
Possible Improvements in Bitcoin Transaction System
The computers used for mining can be made more energy saving to replace the workload proof mechanism. Developers are also developing “lightning network” for Bitcoins, which can deal with plenty of small transactions outside a blockchain. Such development would ensure faster connection to enable quicker broadcasting of larger blocks than before.
They can also get mining machine companies to install the new version of Bitcoin client which can support larger blocks. Although some miners have deployed the new version already, it still seems to be vulnerable to attacks by the Internet. Ideally, a large number of small transactions have pushed the system’s limits, which essentially shows the necessity for upgrading.
In the current scenarios, when financial companies conduct business with each other, it takes several days to synchronize their internal ledgers, but this process will retain funds and increase risks. It will take a longer time for distributed ledgers to solve such problems, implement digital banking, and complete transactions within seconds or minutes. They may save a lot of expenses for banks: according to Banco Santander, such books can reduce bills of $20 billion annually by 2022. Suppliers still need to prove that these books can deal with transactions with a price much higher than that of Bitcoins, and some big banks have standardized these emerging technologies. Among them, UBS proposed to create a standard “settlement currency.” UBS, jointly with Goldman Sachs, JPMorgan Chase, and other 22 banks, invested in establishing a blockchain start-up R3 CEV, which will be committed to developing a standard framework for private ledgers.
The problems faced by banks are not exclusive. It is hard to maintain the relationships with various companies and public institutions, in addition to the challenges of frequently incompatible databases and high costs of communicating with each other. Ethereum, the ambitious distributed ledger project, aims to solve these problems. The masterpiece Ethereum, developed by talented 21-year-old Vitalik Buterin from Canada, can deal with more data than Bitcoin. It comes with programming languages, which allow users to prepare more complicated smart contracts, create invoices upon receiving goods or automatically send dividends to stockholders when profit reaches a certain level. Buterin dreams of a “decentralized autonomous organization,” a virtual company running on Ethereum blockchain. Before delving deeper into this, let us explore more about Ethereum.
Blockchain and Ethereum
Ethereum is a decentralized platform based on blockchain technology. It runs smart contracts, which are applications that run without any possibility of downtime, censorship, fraud or third party interference.
The usefulness of programmability provided in Ethereum is not just limited to track and record people’s property, but also extends to many new aspects. One of them is the built-in car keys in Ethereum, which allow for the sale and release in agreement with relevant rules, producing a new P2P car leasing or the sharing mode. Besides, someone proposed to use this technology to make autonomous car become public resources. According to the predetermined rules, such cars can use the digital funds stored in their private keys to pay for fuel, maintenance, and parking.
Not surprisingly, some people think that this plan is too ambitious. The creation block of Ethereum, having commenced in August, only boasts a small number of start-ups currently working on this project. Also, Buterin admitted in a recent blog that he is short of funds at present. The specific details of the blockchain will not continue to arouse response, but this enthusiasm has been inspiring both start-ups and established magnates to continue exploring the potential of distributed ledgers. Although many have underestimated the ability of accountants all the time, the importance of ledgers remains self-evident.
Blockchain and the Internet of Things
Blockchain has a lot to offer even for scenarios related to the “Internet of Things” dealing with a network connected by billions of static everyday objects, such as refrigerators, snubs, and lawn sprinklers. A recent report titled “Device Democratization” of IBM indicates that it is almost impossible to make centralized tracking and management of billions of devices. Hence, it is unwise to attempt as it may make the overall management process vulnerable to hacker attacks and government monitoring. For such cases, distributed ledger system seems to be a feasible and tangible solution.
Principally, this blog highlighted the fundamentals of bitcoins and blockchain technology, their evolution, applications in various fields, and their future. Besides, it focuses on the technicalities behind a single bitcoin transaction and clarifies basics about the hash value and hash calculations. Additionally, it talks about the disadvantages of the Bitcoins including the security aspects and ways to address these problems. Every technology has an inception cycle while growing from an idea into the maturity. Whether you are a software engineer, a financial analyst or a legal person, blockchain technology offers promising technological revolution worthy of the future. Let’s aim at unlocking its hidden potential to change our lives and influence our future and the world.
How blockchain is reshaping the world of business
By Bridget van Kralingen, Senior Vice President, Global Industries, Platforms, and Blockchain for IBM
In recent weeks, the chorus of crypto naysayers, led by analysts, banks, regulators, and governments, has grown louder. But while the future of cryptocurrencies may be cloudy, one thing is crystal clear: The blockchain technology that underlies these new forms of currency is here to stay.
Digital currencies are just the first application of blockchain to go mainstream. Blockchain networks can record and manage any transferable digital asset representing goods or information — whether a share of stock, a streamed song, your healthcare records, or an international cargo shipment — as our work with clients has shown.
I believe blockchain, and the new business models that are being shaped by the technology, could democratize access to data and help improve trust and accountability across our digital economy.
As this happens, major positive benefits for business and society will take hold.
Beauty in blockchain
While the blockchain technology used to power new cryptos may not be as sexy as the digital tokens that seem to triple in value in the blink of an eye, blockchain is serving as the backbone to explore dynamic new business models far beyond finance, from healthcare and food safety to government and global trade.
The beauty of blockchain rests on its ability to create a single, shared version of a trusted ecosystem. A distributed ledger, blockchain networks enable the verification and storage of transactional records to be divvied up among a network of computers. There is no central authority or middleman that transactions must pass through. Each node on the network has an exact copy of the record, making it near impossible for anyone to tamper with or change it.
Think about a collector buying a work of art, or a fine wine. These transactions may often rely on incomplete records and personal assurances. On a blockchain network, the buyer would be able to see the product’s origin and history of ownership, as well as the conditions it was stored in — a digital record of its provenance.
That’s the true power of decentralized, peer-to-peer systems. No single party controls the data. Knowledge and value are distributed among a network’s participants, harkening back to the early, idealistic days of the internet before a handful of companies gained control of our data and commercialized it for their own benefit.
An OS for trust
I like to think of blockchain as a new operating system for building trust. That’s why we are so excited about its potential to enable new models of collaboration and value creation for businesses, governments, and individuals.
However, for that to happen, important obstacles need to be addressed because not all blockchains are created equal.
For example, blockchain networks, such as those underlying popular cryptocurrencies, require a computationally intensive system of mining. That can slow down transactions and consume enormous amounts of energy, making it hard to scale. Also, the anonymous nature of these networks makes them inhospitable to broader use in business where a greater degree of transparency is required.
Another key attribute for broad blockchain adoption is the ability to create networks where members are known to one another and can define the level of sharing they are comfortable extending. In this permissioned environment, only relevant parties in a workflow may see the information, allowing businesses to conduct transactions while minimizing the risk of revealing confidential or competitive information and building trust and greater collaboration.
At IBM, we’re advancing blockchain networks that meet the real-world needs of business. Networks that include these four fundamental requirements: accountability, privacy, scalability, and security.
This is why the work by The Linux Foundation to advance Hyperledger is so vitally important. Their approach — enterprise-grade software built on open standards — has already attracted more than 200 organizations, including IBM, to advance cross-industry, interoperable blockchain software.
By sharing a foundational software layer we envision a world of multiple blockchains, public, private, or a mix of both. Participants can build applications to suit their specific needs, while being assured that their applications can work seamlessly with other blockchain systems as they evolve.
IBM has worked on hundreds of blockchain projects around the world that demonstrate the potential of this revolutionary technology and we’re now seeing a new blockchain-based economy take shape.
They range from supply chain applications that can track the provenance of goods from diamonds to mangoes, enhancing food safety and fair trade, to streamlining global shipping and cross-border payments. Some of the most encouraging uses of blockchain could potentially benefit the world’s poorest citizens by providing a bridge to the banking and financial system and validating property rights and ownership.
But reducing inefficiencies and friction in commerce is the low-hanging fruit. I believe blockchain technology will spark brand new applications and innovations yet to be dreamed up. On that, you can put your trust.
This post is sponsor content from IBM and was created by IBM and Insider Studios.
Blockchain and the sharing economy 2.0
The real potential of blockchain for developers
We are at the beginning of the blockchain technology cycle. Bitcoin was the first and most notable application of the blockchain, but it’s only the beginning. We now have a technology that can provide trust in a network without a central authority.
Blockchain technology has the potential to reshape all economic activity. It truly is that important. Unfortunately, awareness of the blockchain is intertwined with Bitcoin, the cryptocurrency, which limits people’s thinking and obscures their vision of greater possibilities. People find it difficult to see beyond the use of blockchain as a platform for capital markets. However, its use within financial services is just one niche use case. Other valuable use cases exist for using blockchain in everything, including the supply chain, such as proving provenance in the diamond trade (for example, EverLedger), or enabling a chain of custody for valuables (such as Assetcha.in), or, for providing better tenancy agreements in the property market (such as Midasium). The opportunities are only limited only by the imagination.
The landscape is further confused by the lack of standardized terminology and competing projects. Some people talk about blockchain to refer specifically to the Bitcoin blockchain. Others use the term blockchain to mean a distributed ledger. Some companies are offering private blockchain solutions, such as Ripple for financial settlements and Guardtime for data integrity. R3CEV, for instance, is a banking consortium of 43 banks that plans to build a private banking blockchain.
The basis for all of this is that the blockchain can provide trust in a network without a central authority. Standardization will come in time. The Hyperledger project, led by Linux, and including IBM and JP Morgan, is attempting to build a cross-industry open standard.
Centralization has been a core organizing principle for the economy and society since the agricultural revolution. As the human population grew, people had to make decisions that benefited the general population, not just the individual, family, or clan. This centralization dynamic also plays out in the economic realm. Larger organizations with more customers tend toward vertical integration and centralized functions to increase efficiencies and reduce costs. Economic centralization is the most effective organizing principle when communication and transaction costs are high. But this centralization is changing and will have profound implications for human organization. The Internet brought communication costs down. Blockchain will do the same for transaction costs.
Blockchain has the potential to be the most important democratizing force in history because no central authority is required. The applications of blockchains and decentralized trust are more powerful than is understood. Industries as wide-ranging as accounting, legal services, real estate, and e-commerce have all built business models based on providing trust between a buyer and seller. In older industries, this trust has been enshrined in law—providing a barrier to entry and protection from new entrants. Blockchains, however, are a low-cost market disruption to any business that acts as a middleman in a market.
The Internet allows content to be packaged up and sent to anyone else as data without the need for a distributor. This reduces marginal communication costs to almost zero. Blockchains are the economic infrastructure that allows both physical and digital assets to be packaged up and sent to anyone else without the need for a central authority. This reduces marginal transaction costs to almost zero, which makes it just as easy to sell a house as it is to make a micropayment for reading a blog. The blockchain brings a scalable business model to anybody and everybody on the Internet.
The sharing economy 2.0
As blockchain becomes more widely understood, many will focus on how it disrupts existing industries. E-commerce, legal services, and real estate will be targeted by lower-cost blockchain-based services. Some middlemen provide far more value that just trust. Amazon.com, for example, provides logistics, recommendations, and next-day delivery. Other middlemen offer nothing more than a signature and legislation that insulates them from competition. Eliminating the need for an intermediary could impact some of the biggest technology companies. Rather than use Uber, Airbnb or eBay to connect with other people, blockchain services allow individuals to connect, share, and transact directly, ushering in the real sharing economy. Blockchain is the platform that enables real peer-to-peer transactions and a true “sharing economy.”
Disruption is exciting and grabs lots of headlines and consulting fees. But more importantly, blockchain will create new markets. These markets will be ones in which individuals can trade non-traditional assets like reputation, data, and attention. Blockchain makes any activity, however small, easy to monetize. What about using blockchain to share energy and earn energy tokens in a microgrid environment? What about paying somebody an advice token for a 30-minute advisory call? Or earning tokens for sharing genomic data. Each time the data is used, the user receives a token in a licensing-type model.
The opportunities are vast—extending into all existing economic activity and even social activity that can’t yet be monetized. The vision that blockchain will deliver is nothing less than the reshaping of society and the economy. It is up to developers to start building applications and experimenting. There are opportunities to provide cheaper auditing and accounting services. Many legal contracts are standardized, therefore blockchain and smart contracts can be used to offer cheaper legal services. Thinking bigger, what about voting? The requirement for security, anonymity, and fraud-resistance makes voting a prime use case for a blockchain service. Blockchain will allow entire industries to be rebuilt. It’s time to jump in.
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