Satoshi Nakamoto, a pseudonymous developer, is credited to have invented bitcoin, the world’s first decentralized cryptocurrency. Since releasing the first open source bitcoin client in January 2009, the use of cryptocurrencies has come a long way.
Now, there are a number of altcoins – alternative cryptocurrencies other than bitcoin – that vie for your attention. Some of the popular ones include Ethereum, Ripple, Bitcoin cash, and Litecoin.
What’s common in all cryptocurrencies is that they rely on blockchain technology. Incidentally, use of blockchain has far extended the world of cryptocurrencies and led to ask if cryptocurrencies are the future.
What is Blockchain?
Simply put, you may look at blockchain as a database of transactions or a digital ledger that is incorruptible.
All the information that a blockchain holds is shared through the network and reconciled continuously. The information related to any given transaction on the blockchain is held in a public database.
Blockchain’s use no longer limits to the financial world, and its implications are also seen in fields as diverse as healthcare, governance, supply chain, and education.
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Blockchain Technology and its Implications
The implications of blockchain are far ranging. From holding the potential to affect us at a societal level, this technology can bring about positive changes in realms such as payments, transaction processing, as well as record keeping.
Cryptocurrencies have opened up a new world for several people in parts of Africa, Asia, and South America, who until now, remain unbanked or underbanked.
Moving forward, not-for-profit organizations working in places of turmoil can turn to blockchain-based smart contracts to bring complete transparency surrounding the use of funds collected through their international aid campaigns.
Impact on Representation of Asset Ownership
If local governing bodies record real estate ownership details using blockchain, accumulated holdings as well as details surrounding sale of properties would be complete transparent, be it to probable buyers or lenders. This would minimize instances of property dispute significantly.
While the process would simplify proving ownership, it would also do away with the need of going through possibly corrupt government officials and middlemen in some countries.
Impact on the Healthcare Industry
The adoption of blockchain technology by the healthcare industry can result in solving multiple problems. For instance, blockchain provides the perfect platform to create health information exchanges.
The technology can also address aspects such as streamlining data standards and creating consistency when it comes to implementing rules and assigning privileges.
By using blockchain in research, people associated with this realm can look forward to increased accuracy from clinical trials. Further, blockchain can work in giving healthcare professionals quicker access to research data, which, in turn, would lead to speedier diagnoses.
Impact on Everyday Lives
Internet of Things (IoT) is an aspect that is fast entering our everyday lives, through a range of home appliances and devices. There are, in fact, smart cities that rely on internet-enabled applications in areas such as transportation, controlling traffic, infrastructure management, and even garbage collection.
As we move toward a society where IoT becomes mainstay, blockchain-based smart contracts could work in making decisions independently. This would allow smart objects to operate as desired without the need for human engagement.
Impact on Governance
Blockchain technology-based frameworks can give self-organized societies the ability to make collective public decisions and improve performance of authoritarian roles.
In March 2018, Sierra Leone became the first country in the world to use blockchain technology in its national elections, where voters cast ballots anonymously and recorded them on Agora’s blockchain.
Blockchain simplifies verifying a voter’s identity and ensures that votes are not cast more than once. It also does away with the need of manual presence at physical locations as well as paper ballots.
Impact on Payments
With traditional payment systems, contracts are typically fulfilled upon the meeting of preset criteria followed by validation by central authorities.
Blockchain-based transactions, on the other hand, rely on contracts stored in public ledgers that circumvent the need for middlemen, and fulfilling contracts between two parties takes little time.
The conventional distributed ledger system can bring with it unwarranted delays when settling transactions, which is why looking at a new technology to streamline the process make sense.
Blockchain has the potential to bring about a real-time payment system that works in providing cost-effective solutions for financial institutions that depend on central authorities for clearing and settlement of payments.
The risk of online attacks is more with centralized payments systems, where attackers need to focus on just one point of entry. With a blockchain-based distributed ledger, attackers would need access to all networks linked to a single transaction at the same time, and this is near impossible to accomplish.
Effect on Record Keeping and Transaction Processing
Every transaction carried out using blockchain comes with its own unique imprint on the blockchain. This simplifies tracking of transactions, provides complete transparency, and works as an effective solution to counter identity fraud.
Consider this – a food manufacturing company makes use of blockchain to streamline its supply chain. In the event of having to recall contaminated items, it can quickly track where the affected items have gone, and request for targeted recalls accordingly.
IBM and the Centers for Disease Control and Prevention (CDC) have turned to blockchain with the aim of streamlining long-running surveys that CDC uses to track patient symptoms and treatments.
They are in the process of creating a blockchain-based system to track public health problems such as influenza and opioid dependence.
Can Cryptocurrency Be the Future Of Payment Systems?
While the use of cryptocurrencies is still in nascent stages, they have managed to enter the payments sphere owing to the multi-functionality offered by some payment apps.
Popular payments apps such as Revolut, Square, and Circle provide integrated cryptocurrency buying and selling solutions. In some instances, people can also use their funds to make transactions.
From a consumer’s point of view, the ability to use cryptocurrencies to make transactions and investments comes as a definite plus.
Some experts are of the opinion that despite the intensifying hype surrounding cryptocurrencies in financial markets, it is still too early to move toward any form of large-scale practical usage of cryptocurrencies.
On the other hand, several financial institutions the world over are looking at what blockchain has to offer in the payments arena. With some measured decision-making, over 100 banks have already signed up with Ripple to test the blockchain technology it has to offer.
Spending cryptocurrencies needs to become simpler for them to enter the mainstream. This requires more businesses start accepting them as modes of payment.
However, not many establishments might be willing to bear the costs associated with crypto transactions, which can come in the form of transaction costs and risks associated with exchange rate fluctuations.
The transition from using fiat currencies to cryptocurrencies for everyday payments, as a result, could end up taking some time.
Does Bitcoin Have a Future?
Expert opinion on this is rather divided. Dire predictions surrounding the future of bitcoin have been going around since early 2018, soon after its value crashed significantly.
However there are people who continue to believe in the potential the first cryptocurrency has to offer. Bitcoin received a significant endorsement in March 2019 when Marc Faber, a renowned stock market expert and investor, announced his purchase of bitcoins.
One problem with bitcoin having a future is the averseness that most central banks have shown toward cryptocurrencies. This is because they view cryptocurrencies as competition to their traditional centralized methods of planning.
Fortunately, leading payment processors such as Circle and Square have embraced blockchain-based payment systems, giving consumers easy ways to use their money.
Can Bitcoin Become a Dominant Currency?
Where things stand, bitcoin is already accepted as a mode of payment in several countries around the world. As more countries jump on the bitcoin bandwagon, the possibility of bitcoin being treated as a globally accepted currency does not sound farfetched.
What might also work in favor of this happening is the fact that bitcoin is not tied to any particular country’s banking system or economy.
Until now, bitcoin is looked upon as little more than digital gold for speculators and not as a currency that one can use regularly. In addition, governments are in no hurry to give up control on traditional currencies and by extension, inflation.
However, there is a good chance that public pressure will force governments to legitimize the use of popular cryptocurrencies such as bitcoin. Can bitcoin become a dominant currency? The answer to that will only reveal itself in the none-too-near future.
Is it Safe to Invest in Cryptocurrency?
What’s important is that you carry out some groundwork before heading this way. Trading in cryptocurrencies continues to remain a high-risk proposition, which is why you should weigh your options well.
In addition, don’t invest what you cannot afford to lose. Another aspect that you need to consider when investing in cryptocurrencies is to safeguard your investment against possible theft.
With the value of most prominent cryptocurrencies experiencing an upswing since early 2019, it seems unlikely that interest in them is going to wane anytime soon.
On the contrary, with blockchain-based technology making inroads in several realms other than the financial industry, it appears that the technology is here to stay.
If Ripple’s foray and quick expansion in the cryptocurrency and payments industry is anything to go by, it is safe to say that more financial institutions will adopt this technology in the near future.
About the Guest Author
Jon works as a researcher with iCompareFX. This website lets its users compare the world’s top overseas money transfer companies across parameters such as cost, speed, and customer service. When he’s not working, Jon likes exploring music from different genres.
About the Site Author and Blog
In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.
I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to lay out our financial independence journey to reach a Millennial retirement and connect with and help others who share the same goal.
Some of my favorite things to discuss include investing in index funds, how to save money, travel hacking with help from the Reddit churning community, house hacking and optimizing the benefits of my condo vs. apartment living, and tax topics like the earned income tax credit, common tax deductions, tax reform in 2018, or other useful tax topics. I want this to be a journey for us all to learn how to make a lot of money and pursue the lives we want.
I have not been compensated by any of the companies listed in this post at the time of this writing. Any recommendations made by me are my own. Should you choose to act on them, please see my the disclaimer on my About Young and the Invested page.