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Blockchain and cryptocurrency: what does big business think?
‘Bitcoin is just one example of something that uses a blockchain. Cryptocurrencies are just one example of decentralised technologies. And now that the Internet is big enough and diverse enough, I think we will see different flavours of decentralised technologies and blockchains. I think decentralised networks will be the next huge wave in technology,’ – Melanie Swan, author of Blockchain: Blueprint for a New Economy.
Cryptocurrencies were designed to frustrate the financial institutions, businesses and governments that are at the heart of the modern-day world economy. So it’s unsurprising that they have described cryptocurrencies as ‘Ponzi schemes’, ‘fraud’, and even ‘evil’.
JPMorgan's chief executive, Jamie Dimon, may be the best example to demonstrate what type of attitude industry has toward cryptocurrencies – one of confusion. The high-profile CEO took an extremely hard-line on cryptocurrencies when the hype started to build, threatening to sack staff investing in virtual currencies and calling it all a scam, before admitting he regretted that stance earlier this year.
Looking beyond bitcoin: where else can you find volatility and tradeable price movements?
Although the debate over the value and purpose of cryptocurrencies will rumble on, there is an overwhelming consensus around the huge potential of the blockchain technology that forms the backbone of all cryptocurrencies. While blockchain is essential to the survival of cryptocurrencies, blockchain can exist without cryptocurrencies.
From this, big business has come up with a mantra that doesn’t seem to be waning – bitcoin is bad, blockchain is brilliant.
What is blockchain technology?
Nearly every transaction we undertake is managed by a middleman. If you pay for something in a shop using your debit card, then you rely on the bank or payment processor to complete and guarantee the purchase. If you send an email or instant message, you rely on the email or messaging provider to send your message.
At the simplest level, a blockchain is a sophisticated distributed database controlled by everyone using it, rather than one central authority like a bank or payment processor. With a blockchain, there are no middlemen. It is a type of distributed ledger that continuously updates digital records of who owns what. It records transactions in real-time across all of the computers using the system, so the record cannot be retroactively altered or changed without the agreement of everyone using the blockchain.
The perceived benefits are wide-ranging. Hacking such a large volume of computers which are not under a single point of control is almost impossible. That, combined with encryption, means users have confidence that all records cannot be tampered with to create trust. The automated nature means transaction times can be shortened, and the lack of a middleman means the cost of doing business through a blockchain is also cheaper.
Blockchain technology is highly diverse and flexible, and this is derived from its ability to facilitate ‘smart contracts’. Any form of asset - such as currency, stocks, or even a deed to a house – can be deposited within the blockchain and programmed to react when a certain trigger is met. This essentially automates processes usually carried out by middlemen, transferring an asset once payment has been received, or returning the asset to its owner when payment has not been made, for example.
This could also be extended so the blockchain is linked to the performance of another asset, like programming the blockchain to sell shares in a company once the share price hits a certain level.
The Ethereum Virtual Machine is more leaned toward processing complex smart contracts, making Ethereum one example of how blockchains and cryptocurrencies, as well as their role, continue to develop over time.
Different types of blockchain technology
According to Coinmarketcap, only 12 cryptocurrencies carry a market cap of over $5 billion. But over 1300 cryptocurrencies exist, including many of the failures, as constant tweaks are made. It's important to recognise that each cryptocurrency and blockchain differs in some way or another.
The most understood cryptocurrencies are those that are designed to facilitate payments, like bitcoin or litecoin. These are peer-to-peer currencies using a public blockchain, accessible by anyone with a good enough computer.
Then there is a private blockchain, which brings the blockchain back under one central point of control. A company or institution can insert whatever level of control they deem necessary into a blockchain (such as what customers and employees can access), while benefiting from the encrypted-level security, automated processes, and cost-saving benefits of operating an internal blockchain.
Then there is a mix between the two, which is being spearheaded by consortiums. A group of companies share a blockchain, such as all of the major international banks. No single bank is in control, instead all the banks come to a consensus. Think of it is a blockchain for private members.
Blockchain has endless possibilities and there is no doubt that the potential of blockchain reaches far beyond cryptocurrencies. In addition to recording financial transactions, it can record any type of digital transaction. This means it can be used to record changes to any digital information (like medical records) or record any transactions using digital assets (like house deeds).
As a result, the versatile technology has attracted interest from all types of sectors, as demonstrated by a report from CB Insights which outlines 36 of the biggest industries that could be transformed by blockchain.