Blockchain is becoming an increasingly common buzzword worldwide and locally, particularly within Singapore’s Fintech industry.
This can be confirmed by Google Trends’ search results.
Many people have made immediate association of it with Bitcoin. Thanks to the skyrocking price of Bitcoin, reaching new high with each passing week/weeks, in 2017. Bitcoin is the first new case of valued asset transfer using blockchain technology in the internet.
Is Blockchain, The Bitcoin (the protocol and payment network), A bitcoin (the currency) or Neither (of them could represent it at all)?
What is blockchain (in public permissionless domain)?
Basically, a blockchain is a distributed database that maintains a growing list of records (transactions) in a linear, chronological (and time-stamped) ledger. It is the data structure that records the transfer of valued (usually scarce) objects.
Each computer (called a node) connected to the network gets a copy of the entire blockchain and performs the task of validating and relaying transactions for the whole chain. The batches of valid transactions added to the record are called “blocks.” A block is the “current” part of a blockchain that records some or all of the recent transactions and once completed goes into the blockchain as a permanent database. Each time a block gets completed, a new block is created, with every block containing a hash of the previous block. There are countless numbers of blocks in the blockchain.
A blockchain has incorporated the feature of de-centralized, open software that creates the incentives, to make immutability of record (database in the ledger) possible (by paying miners to validate the transactions). It has solved the fundamental issue of “the double-spend problem” with digital cash transfer between peer to peer, without an intermediary.
A blockchain has incorporated the feature of Cryptography, a method of storing and transmitting data in a particular form such that only those for whom it is intended can read and process it.
Bitcoin blockchain encodes tracking transactions in blockchain. The architecture of the network involves peer-based validation, called mining. It has a program scarcity’s component built into it. There are only 21 million Bitcoins that can be mined in total.
Notes:- The so-called premium to “incentivise” is held and distributed by the coin miners, the validators, largely represented by a few major players, centralized though!. The two Bitcoin forkings in 2017, creating new Bitcoin Cash and Bitcoin Gold respectively were triggered by software upgrade, both requests by major miners.
Ethereum blockchain, besides tracking transactions, it also facilitates scripting functionality, or ‘smart contracts’, which are run through the nodes in the network. The smart contract sits on the Ethereum public blockchain, and is run on the Ethereum Virtual Machine (EVM). The Ethereum blockchain only encodes these ‘rules of the games’. The actual payoffs occur by interacting with the blockchain.
According to Ethereum’s official documentation,
“Ethereum is an open blockchain platform that lets anyone build and use decentralized applications that run on blockchain technology”.
Ethereum applications do not have a middleman; instead, users interact in a P2P fashion with other users through a variety of interfaces – social, financial, gaming, etc. Since the applications are developed on the decentralized consensus-based network itself, third-party censorship is virtually impossible. Malicious actors cannot secretly tamper with the application by changing the code and compromise all application users (or nodes that are actively interacting with it). These Decentralized Applications have come to be known as Dapps. Dapps have ‘zero downtime’ – they never go down and, in general, cannot be switched off. Since they are cryptographically secured, Dapps are referred to as ‘secure applications’.
Fintech Applications
There are several promising, real-world applications for blockchain applications across the financial sector. Some of these are listed as follow.
- The ability to speed up and simplify cross-border payments
- Allows the creation and benefits of smart contracts
- Greater trade accuracy, and a shorter settlement process
The secret of its success
The promise of blockchain’s success lies in its “ability to record, store and move any assets with great ease, through automation and in a decentralized manner.”
Blockchain road blocks
With any disruptive technology, adoption and scalability will not be without challenges. Many expect to see a demonstration of immediate value, but forget that there is a complex, legacy infrastructure that requires detangling. There are also several debates over regulations, technical issues, security concerns and more.
To read more, click Blockchain Buzzword in Singapore Fintech article by Carl Freer, a Swedish technology entrepreneur.
Other Challenges Faced by the Blockchain Industry
Standards – We are still witnessing the early days of blockchain technology. There is no agreement on standards in the developer and business community, as of yet. Standards are key in ensuring interoperability and avoiding risks associated with a fragmented ecosystem.
Regulation – The lack of regulation around transactions on the blockchain creates an environment of uncertainty for all players. Highly regulated industries like financial services are treading carefully in the Distributed Ledger Technology (DLT) space.
Know How – The lack of know-how (and know-whom and know-where) around blockchain technologies and the availability of experts in the area is a major challenge in producing killer apps and its adoption widely. There is a huge lagging of technical talent and knowledge sharing in the collaboration space.
The use of the blockchain platform with connected devices or the Internet of Things may take an even longer time to happen in the blockchain applications arena.
Blockchain holds promise of more great innovations in value creation and digital assets transfer in cyberspace.
Balaji Srinivasan, Silicon Valley visionary in an conversation on the topic “The Blockchain is the internet of money” illustrated the advent of Blockchain with zest.
“With the blockchain, everything that was scarce now becomes programmable. That means cash, commodities, currencies, stocks, bonds—everything in finance is going to be transformed, and aspects of finance baked into everything else.” By way of example, Mr. Srinivasan suggests that there could be “a spot market for the cost of storing one megabyte on 1,000 remote computers.” He then offers a slogan for the new age: “If you deal with information, you need the internet. If you deal with money, you need to deal with blockchains.” Pretty much everyone, he adds, deals with information and money.
“It (Blockchain) enables companies to explore new business-to-business models by making every technological resource a potential service to be traded on an open market in real time, with no fees”. – Roger Aitken, 2017
Flash News (31-Oct-17): CME Group Inc. is planning to have Bitcoin Future Contracts listed in its exchange before end of this year – The implication is volatility of Bitcoin currency can be hedged! It addresses a major concern of Bitcoin’s usefulness as a stable stored currency.
CME Group Inc. (Chicago Mercantile Exchange & Chicago Board of Trade) is an American financial market company operating the world’s largest options and futures exchange.
If you would like to know whether you are ready for it, please read my recent post on “5 Tips To Trade Bitcoin Or Volatile Cryptocurrency”
For cryptocurrency starter, you may like to consider opening an account with Coinbase, a secure online platform for buying, selling, transferring, and storing digital currency.
Note:- If you buys or sells US$100 of digital currency or more through Coinbase using this link, you and your referral will both get US$10 worth of free bitcoin.
Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
If you’ve any comment, please drop me a line.
Reuben Ong
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