IS BLOCKCHAIN THE FUTURE OF THE WORLD ?

How Bitcoin and blockchain will impact the currency market? This billion dollar question has plagued buyers and bankers trying to control its usage and application. Being in digital market space, I always knew that the nerds will rule the world. I knew every other form of mainstream education will bow before it.

The highly contagious idea of Satoshi Nakamoto has spread like wildfire. His paper highlights the challenges faced by the current monetary system the world uses and the solution to it. The emergence of bitcoin proves that the fundamentals of paper currency lack its flavor and also people have started realizing it. After reading, you too might start seeing problems in the paper currency stored in your wallet.

WHAT DOES OUR CURRENT MONETARY SYSTEM LACKS IN?

Is there something wrong with our monetary system or is it a demon no one can control?

The way inflation plays a major part in everyone’s life, makes you think that something is not really right with the current monetary system. The present monetary system is based on trust that the central government is behind the transactions. Any issues faced will be addressed by the agency. The currency note clearly states “Guaranteed by the central government” and explains this further by promising to pay the bearer the sum of monetary value the currency holds.

Trust like any intangible entity holds value as long as it is capable of holding it and after that comes the downfall. Something which Indians felt in the demonetization drive when the currency in hand suddenly stopped having any value. The silence of the head of the central government for months showed the fallacy in the whole process. If the authority on a currency is withdrawn, then the value of current falls to a nil value.

My hard earned money has no value just because an organization changed its plan and did not have proper arrangements to address it and above all stayed silent over it for months. So what if a currency is not controlled by any one central authority but rather the whole group of people who owns it have full power to control it? This led to the linkage of demand and supply concept in the digital currency.

WHAT ARE THE ADVANTAGES OF THE BITCOIN THAT HAS MADE IT LOOK SO ATTRACTIVE?

We all would have encountered and are well aware of the terms ‘inflation’ and ‘deflation’. Either of these occurs when the cost of a product or service fluctuates, but the denomination and value of a particular currency note remain the same. The reverse of this concept is being followed in the digital currency market. Unlike conventional money, the value of the cryptocurrency will fluctuate based on demand and supply but it would not impact the price of other product or services. Crypto-currency like Bitcoin provides added advantages like not having spending limits imposed by banks. Transaction charges which credit cards charge between 2% – 3% is not there. It does not have a delay in the transfer or receipt of the money. In fact, the transfer gets cleared in 10 minutes which is, in fact, a really intimidating factor.
The reason for this is mainly the absence of a central authority to take decisions and maintain the monetary system. Instead, it is controlled by the people who verify the transactions through network nodes. These transactions are recorded in a ledger distributed publicly called as blockchain. The transaction happens peer to peer digitally. Each transaction is digitally time stamped through hashes on a system of hash based proof of transactions. The recordings cannot be reversed until the transaction itself takes place in a reverse manner. This is the aspect that adds further security to the block chain.

As per the research paper, the transactions are “computationally impractical to reverse”. The possibility of someone double spending by simply copying the digital files of the crypto-currency is eliminated as people verify these transactions available across blockchains. The system runs smoothly with the users getting more power and freedom. At start majority of the people, The security is one of the main reason that attracted people towards bitcoin

Even boundaries between nations do not present any boundaries to this mode of transaction. The efficiency of the system gets increased and the costs for financial mediation and transaction get reduced drastically. All this happens in the total absence of any central authority.

IS BLOCKCHAIN FOOLPROOF?

Is block-chain really worth the risk?

The main backbone of the whole system is the decentralized payment system, unlike the current monetary system which blindly relies on the central authority. Approximately in every hour, a new group of accepted transactions is published on the block-chain, six times to all nodes. As the transactions are available on the publicly available ledger and the transactions are time stamped, nefarious manipulations are not possible.

The whole process in crypto-currency has been scrutinized by experts and central bank authorities and not much fault has been found. It looks as if the future has hastened itself on humanity. Blockchain technology followed heavily by hackers, chink in armor has not been found.

Bank of England has even praised the payment technology as it does away with the paper money. Economists are pondering over the possibility of a negative rate the paper money may imply.

The faith and the benefits of the bitcoin has silently pardoned its association with narcotics sale through the infamous silk road website.

IS BITCOIN THE ANSWER TO OUR MONETARY SYSTEM FLAWS?

However, the crypto-currency bitcoin system has some challenges too. Fear that it may fall like its predecessors still looms. The supply is limited to 21 million bitcoins if the current architecture and technology are maintained, then beyond the specified limit, it cannot be mined anymore.

Experts believe that limited supply makes bitcoin immune to inflation, unlike currencies which get printed when required. The process of creation and its control is difficult to comprehend by many. Its production knowledge in short and long term actually reduces its unpredictability. An exponential algorithm that controls the production of bitcoin supposedly also indirectly controls inflation in the process.

Inflation is due to many factors and not just the amount of currency available. Adding the speculation of bitcoin makes the whole system too complicated.

The high volatility of 5 – 10% of bitcoin while the forex’s volatility of around 1% makes bitcoin too risky to possess. Bitcoin valuation is dependent on speculative factors like public opinion and confidence in its value and the emergence of marketplaces. Any negative sentiment has the potential to wipe out the entire system leaving no “central authority” to go to.

IS BITCOIN FREE FROM FRAUDULENCE?

A deep analysis shows that the whole system might not be fraudulent free from double spending at least hypothetically. A well coordinate action can destroy the whole system and just like bitcoin, it might also not have a face. Strategies have been devised which might sound like a fire sale.

A majority attack where, if the hackers control more than half of the network the probability of success rise by 100% is the scariest. Recent hacking incidents and the capabilities of hackers are well known.

A system vulnerable to attacks like this may have a limited future.

WHAT ARE THE IMPLICATIONS OF THE BITCOIN TO THE WORLD BANKERS?

Why has bitcoin worried the world bankers?

In the present day, the acceptability and the widespread adoption of the crypto-currency bitcoin by people have scared off the central authorities. For the first time, people are really changing the monetary system instead of the other way round.

The potential impact of bitcoin on the monetary system is being taken very seriously and the Bank of International standards (BIS) acknowledged it. If not entirely replacing the central authority, will at least make many of their functions redundant.

Central banks of Canada and Ecuador have taken the cue and released their own versions. Electronic Currency Mint, an Ireland based Fintech startup is pushing the technology to more than 30 central banks and has piloted the same in several countries.

These proactive steps to find new approaches to provide electronic currencies by banks may not really be adequate to prepare them for the future. Something that does not have a face or owes allegiance to one individual country looks scary. Ignoring everything, bitcoin transcends across all geographic boundaries and systems into digital wallets held by individuals.

WHAT IS THE FUTURE OF BITCOIN?

As we all know that with great power comes great responsibility. The digital system that is the backbone of bitcoin is encrypted and is highly secure. But the hackers are adapting at a faster pace to this encryption and if they equip themselves to hack the blockchain, then in no time all the bitcoins will be in the hands of the hackers. This makes the digital currency a game of the breaker and the saver. Hence considering all these factors and also examining all the various advantages and risks the system possesses it becomes very difficult to predict the future of cryptocurrency bitcoin. The growing acceptability of the payment mode by people regardless of their central banks clearly shows that the gaps in the current system. Banking procedures and ways need to improve before this turns in a digital disaster.

The current monetary system should take a cue from the success of bitcoin and form solutions to address it instead of simply replicating it to compete. Technology has brought much advancement to the system and the attractive part is that they have been also accepted by the conventional people. Bitcoin might just be far fetched idea or a brilliant step whose future we might not be able to predict. Whatever it may be but right now blockchain is having a dream run and let’s hope it does for a better future.