Stop Focusing on Bitcoin, and See the Bigger Picture: Blockchain
If you weren’t living under a rock for the past couple of months, it is extremely likely that you have had witnessed the Bitcoin frenzy that took over the media. The most popular cryptocurrency was the hot topic in everywhere from mainstream media to family conversations. The price of Bitcoin skyrocketed from below $1,000 to $20,000, all during 2017. Although it lost some of its value after reaching record-high, it still closed the year above $13,000, a more than 1200% increase in its value. Not only Bitcoin but also other cryptocurrencies such as Ethereum, Litecoin, and Bitcoin Cash also saw substantial gains during the crypto-mania.
With the turn of the year, it seems like the bullish run of the cryptocurrencies are over. All major cryptocurrencies plummeted-Bitcoin and Ethereum losing more than half of their value. The Bitcoin craze seems to be faded as its price sits below 10,000$ at the time of writing. The boom in popularity caused the cryptocurrency market to reach a total market cap of more than $850 billion in their peak.
Keen investors still carry optimism about Bitcoin as they believe it will replace paper money in the future. The main functions of money are to act as a medium of exchange and a store of value. The problem with Bitcoin is that it has zero intrinsic value. Fiat money is eventually just paper printed by the government and the quantity is determined by the financial system. After the United States was the last country to abandon the Gold Standard in 1971, all currencies have zero intrinsic value too. Currencies are only valuable because the government guarantees it is. When a person or company accepts fiat money as a method of payment they rely on the stable government and the independent central bank that it will hold its value in the foreseeable future. Since Bitcoin was built on the idea of decentralizing money transfers and removing the central authorities, there is no guarantor for your Bitcoin. The price of a Bitcoin is based on what the network agrees upon. Bitcoin is still extremely volatile and can increase or decrease 10% in a single day. There is fierce controversy over whether Bitcoin is the next big thing after the Internet or the biggest bubble in the history. The only thing that both sides agree is that Blockchain – Bitcoin’s underlying technology – will be truly disruptive.
During the Bitcoin talks, Blockchain was usually kept in the background as people focused more on the price of Bitcoin. Blockchain is what made Bitcoin a powerful tool in the first hand. Blockchain is a protocol in which each transaction is represented anonymously as a block. This transaction -block- has to be validated by the network of computers to ensure that it is true and the user isn’t trying to cheat. The computers in the network compete with each other to solve the complex puzzle correctly first. Once the network approves the first computer’s ‘method of proof’, the block is added to the digital ledger with a link to the previous blocks; hence the name ‘blockchain’. This computer is awarded for its use of computational power during the validation process. Each new transaction is cryptographically linked to the previous transactions in the blockchain making it immutable once added to the digital ledger.
In essence, blockchain provides a medium for the exchange of value without the necessity for central intermediaries to ensure trust between the two parties in the transaction. Instead of relying on these central authorities, users rely on the network of computers to validate and record transactions to the open digital ledger, a decentralized shared database. The need of validation and cryptographic links between blocks makes the ledger very secure and hard to tamper with.
Blockchain technology isn’t something new, it was first introduced by IBM in the 1970s. It remained obscure until Bitcoin debuted in 2018 as the first main large-scale application of blockchain. Venture Capitalists have already started pouring hundreds of millions of dollars to fund new startups that will disrupt existing industries with the use of blockchain technology. They don’t want to miss out on the early stages of the possibly next big thing after Internet. This cash flow will expedite the adoption process and discovery of its application potentials by companies.
Introduction of cryptocurrencies as an alternative method of payment have already started to disrupt the financial services industry. But the adoption of blockchain technology is not limited to only cryptocurrencies in this industry. Blockchain provides an inexpensive, quick, and easy transfer of ownership for assets. This will affect how we send money internationally, purchase and sell financial securities like stocks and bonds, as well as registration of real estate, or just anything that acts as a store of value. Although many people tend to think of mainly financial services industry for blockchain application, in reality it is much broader. The traceability feature of blockchain allows companies to manage their very complex global supply chains and authenticate their products. In addition, the encryption and immutability features provide companies to store data securely and anonymously as well as being accountable for external audits. The decentralization process will increase cost and time efficiency in processes, which in return will be reflected as lower prices for consumers. Even governments have started to utilize blockchain in the electoral voting processes.
No matter what the price of one Bitcoin trades at, there is no doubt that blockchain will be considered as one of the greatest technological innovations after the Internet in the near future. We’re still very early in the game and current blockchain applications are limited. A lot of companies, individuals, and governments are experimenting around blockchain to see its potential benefits and applications in many different industries. We have only seen the tip of the iceberg yet; blockchain has the power to transform the technological infrastructure and systems we rely for most of our daily processes.