Cryptocurrency and Blockchain technology are two different subjects but have a strong relationship with each other. You can say that one doesn’t work with the other in place. Blockchain technology appeared as a result of the financial crisis back in 2008. Over the past decade, cryptocurrencies experienced massive growth and made the headlines on a regularly basis. Still, this new revolutionary crypto technology is in its infancy and has a lot of growing potential. So what is this magic crypto technology and what impact does it have in the near future?
Crypto technology and Bitcoin
If you want to know more about crypto technology and Blockchain then it’s very wise to start with figuring out how it all started. Like I explained earlier, Bitcoin appeared as a result of the global financial crisis back in 2008. Back then there was little trust in the traditional global banking system which just collapsed. A lot of people lost their jobs, savings or pensions just overnight without having any control over their own money.
Bitcoin & Satoshi Nakamoto
As a result of this, an anonymous and mysterious person called Satoshi Nakamoto, started to work on a digital form of online money which he called Bitcoin. Bitcoin can be described as digital cash, which is peer-to-peer, borderless, has limited supply and has no central owner. I have to admit that this explanation doesn’t cover it all but the essence is there.
If you are really interested in the history of digital money and the invention of Bitcoin, I strongly recommend Mastering Bitcoin. In this book cyber and internet security expert Andreas Antonopoulos will guide you in detail through this online revolution.
Crypto technology the first Blockchain
The first Blockchain based cryptocurrency ever created is Bitcoin which is still the most popular and the one with the biggest network volume. Also, the supply of Bitcoin is limited and is capped to a maximum of 21 million ever created. Bitcoin gained much in popularity and this resulted in other cryptocurrencies being created. Most of these newly created coins are just clones of the original(Bitcoin) and only differ in supply. These new clones are called ‘forks’ and are new created Blockchains that have the same codebase but split off on a new chain(network).
Cryptocurrency is not only about money, but the crypto technology and network behind it are mainly focused on transactions. To allow secure payments the underlying Blockchain network has to handle the transactions. This is done in the form of digital tokens which can be used to transfer value across the network. Instead of cryptocurrency, ‘crypto’ is mainly used to define this form of cryptographic money. Crypto refers to the fact that various encryption algorithms and cryptographic techniques are being used. For example, elliptical curve encryption, public-private key pairs and hashing functions.
Blockchain as distributed ledger
The Blockchain network has a central role in this transaction process. Firstly, it is used to store an online ledger of all the transactions that have ever been processed on the network. All these transactions are stored in ‘blocks’ and blocks are constantly added to the chain within the network. Secondly, all the computers on the network(called nodes) store the exact same copy of all these blocks on their hard drive.
This decentral sharing is very important because it reduces possible hacks to zero. Every new block that is added to the chain will be verified by all nodes on the chain. As a result, double spending or performing illegal transactions will be made impossible. Also this distributed ledger of transactions is very transparent. For instance, one can search back to the very beginning of where transaction started.
Many experts say this Blockchain technology can be used in voting systems and crowdfunding, but there are many more use cases. JP Morgan Chase, a big financial institution, sees potential in Blockchain for processing payments and reducing transaction fees. However, this crypto technology have no central authority. If someone loses his/her private keys all funds will be lost forever.
Crypto and Blockchain technology What impact does it have
In the near future, crypto technology will have a very big impact on our daily lives. In my opinion, it will be a silent ‘digital revolution’ just like we experienced with Google, Amazon, Facebook or Uber and AirBnB. Usage of the internet and mobile phones has become part of our daily routines and blockchain technology won’t change this. In the next chapters, I share examples of uses cases which blockchain technology will disrupt or is being disrupted already.
1. Fiverr Uber and AirBnB
Fiverr, the website which is a marketplace for freelancers or digital services charges 0,5 dollars on every 5 dollar transaction. For instance, if blockchain technology was used the transaction costs would disappear. This market-maker principle used by Fiverr or any other business online will eventually go away when blockchain technology enters the market.
Uber and Airbnb, two very young innovative companies, are already threatened by blockchain technology. As a result, these two companies disrupted the traditional economy(Taxi companies and hotels) by offering only an online app.
Create a blockchain instead, which validates hotel bookings or taxi rides and these companies are already out of business. Blockchain not only eliminates the fee processing middleman but also removes the need for a match-making platform.
2. Online subscription services
Currently, parties like The Economist or National Geographic charge a monthly subscription or even an annual subscription fee. For instance, start using blockchain technology introduces the option to pay only per article. This can be done on Facebook or any other favorite app. Because the use of a blockchain carries no transaction cost, only pay for the service offered is needed.
Blockchain may make selling recorded music profitable again for artists by cutting out music companies and distributors like Apple or Spotify. The music you buy could even be encoded in the blockchain itself, making it a cloud archive for any song purchased. Because the amounts charged can be so small, subscription and streaming services will become irrelevant.
Crypto technology it goes further
It goes further. EBooks could be fitted with a code or hash. The EBooks circulate now on a blockchain and are encoded. Every time a buyer appears online and starts a transaction, the blockchain will validate this. When everything seems valid according to the blockchain network, money will be transferred to the author, and the EBook will be unlocked and available for the buyer. To summarize, when artists or writers are using a blockchain, ALL the money will go to them and royalties are a thing of the past.
3. The financial industry
Last but not least, the financial world. This technology will have the most impact on this type of industry. This is a very traditional industry and the sentiment by consumers is more or less like “we have to deal with them and we just need them”. Bitcoin, the first blockchain created, is disrupting this kind of industry. All services currently offered by banks like bank accounts, loans and mortgages can be replaced by a blockchain.
If all the people in the world would start using a blockchain today instead of banks, the entire financial industry would go bankrupt. Lucky for the banks today, the bitcoin blockchain isn’t ready for this kind of volume. That doesn’t mean it won’t come. Currently, software developers all over the world are collaborating and trying to makes this work.
The lightning network
The latest innovation is called “the lightning network” which will create a new virtual layer above the current blockchain. How this exactly works is a totally different story which I won’t cover in this blog. So how will this technology have an impact on the bankers today? In the near future bankers will become mere advisers, not gatekeepers of money. As a result, stockbrokers will no longer be able to earn commissions and the buy/sell spread will disappear.
Crypto technology and Blockchain are still in its infancy mainly because there is no real use case yet. In my opinion, Blockchain technology can be compared with the internet back in the 90’s of the previous century. On the other hand, the digital revolution is not done yet and will continue to change or daily lives in the near future. Whether you are a student or investor, I strongly recommend you to keep an eye on this rapidly evolving crypto technology.
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