How Soon Blockchain Technology Will Change Currency As We Know It
From Ripple, to Ethereum, to Hyperledger, these projects have long been used to decentralize electronic cash transactions. Who will win in a race to replace the traditional currencies?
The author, Lisa Froelings, is a productivity consultant with over four years of experience in human resources working for a major retailer in the US before she decided to build her own small business. Her interests include technology, user experience, cryptocurrencies and how they impact small businesses. You may connect with her on Twitter.
Cryptocurrency is transforming transactions. It’s set to expand its reach outside niche online transactions as it continues to highlight inefficiencies of traditional fiat currency. With Bitcoin, an open source, decentralized currency powered by Blockchain technology, we have the ability to exchange electronic cash in a peer-to-peer fashion. No need for a third-party like a bank or PayPal, or a governing body like the Federal Reserve. The currency is self-governed by a series of protocols and mathematical operations that make it both self-regulated and extremely secure.
Satoshi Nakamoto - the believed pseudonym of the person (or persons) who created Bitcoin - shared a paper detailing how the currency worked in 2008, which served as a timely introduction to the digital currency given the global financial failures of the ill-fated year. Nakamoto describes a system whereby transactions occur via a chain of digital signatures. The Blockchain records these transactions onto a public ledger that records all Bitcoin transactions. New blocks are created by users who “mine” for Bitcoin.
Solve the cryptographic puzzle
Miners race to solve a complex cryptographic puzzle to create the new block and are rewarded with a small amount of Bitcoins if their powerful computer finished the puzzle first. This new block, in turn, confirms that a set of previous transactions have indeed taken place.
Don and Alex Tapscott, the authors of Blockchain Revolution, wrote:
“Each blockchain, like the one Bitcoin uses is distributed: it runs on computers provided by volunteers around the world. The blockchain is public: anyone can view it at any time because it resides on the network, not within a single institution charged with auditing transactions and keeping records. And the blockchain is encrypted: it uses heavy-duty encryption involving public and private keys… to maintain virtual security.”
Solution: Incorruptible digital ledger
What’s so powerful about the Blockchain platform is not that it powers a single cryptocurrency. It’s the structure itself. As the Tapscott authors elucidated in the quote above, the open source, transparent, distributed ledger could be used in a variety of contexts. The “incorruptible digital ledger” (as the Tapscotts put it) could be implemented and enhanced by other digital currencies. This could prompt radical change to traditional currencies.
Since Bitcoin’s inception, dozens of competing cryptocurrencies, digital currencies that use cryptography to remain secure and to prevent duplication, have emerged, such as Litecoin, Primecoin, the infamous Dogecoin, among many others. Ripple, a Blockchain currency alternative to Bitcoin, attracted venture capital investments from Google, securing upwards of $90 mln in total funding.
Who will win?
“Ripple provides global financial settlement solutions to enable the world to exchange value like it already exchanges information giving rise to an Internet of Value (IoV),” reads Ripple’s company website. “Ripple solutions lower the total cost of settlement by enabling banks to transact directly, instantly and with certainty of settlement.”
Though some accuse these alternative coins as being copycat tech attempting to make cash quickly, the adoption of Blockchain technology as a serious endeavor continues at a rapid pace.
Well-established financial institutions like J.P. Morgan have invested immense resources into studying the technology. In fact, J.P. Morgan, Microsoft and Intel pooled together their resources to support a coin rivaling Nakamoto’s. One aptly named Ethereum, given the ethereal nature of every digital currency’s existence.
IBM, on the other hand, is investing its time and resources into a project entitled Hyperledger, an open source enterprise ledger platform based on Blockchain technology sans the cryptocurrency itself. Their logic is that the ledger could do much more than revolutionize electronic cash.
“Some scholars have argued that the invention of double-entry bookkeeping enabled the rise of capitalism and the nation-state. This new digital ledger of economic transactions can be programmed to record virtually everything of value and importance to humankind,” the Tapscotts contend.
Blockchains can be used for anything and everything. They have the capability to endow everyone with the ability to participate in a global economy. The distributed ledger could cut costs of transactions and completely cut out middlemen in commercial and economic enterprises. By the same token, however, there are colossal complexities concomitant with cryptocurrencies. If they continue to grow in popularity, how will governments decide to regulate them? What flaws in the Blockchain platform will emerge - and how will we address them? The answers, as of right now, are uncertain.
Blockchains are already changing how we view our cash by eliminating middlemen and third-party institutions, creating a much simpler and more stable solution to global finance. What role Blockchain will play in the future is unclear, but it has already left an indelible mark.