Even when you aren’t involved in the technical world or aren’t an expert on cryptocurrency you will have heard about Bitcoins and Blockchain. Media and newspapers can’t stop talking about it, trying to explain everything to the mainstream citizen. But why is it so complex that even a technical person doesn’t understand it completely?
Many people claim that Blockchain is a revolutionary disruptive technology, that eliminates the involvement of a third party in a transaction, reducing cost, reducing delays, making it more secure and being efficient. Every change will be synchronized in real time, due to the distributed ledger network. These ledgers also called blocks are linked cryptographically. The result? A transparent and secure network (Scott, 2016). This sounds fantastic. A technology that every industry would love to implement and improves the transaction process. However, there are also people who claim that it’s not a disruptive technology, but rather a foundational technology, as it will provide the structure for future transactions involving anything of value (Casey, 2017).
Yet, aside from Bitcoin itself, there are only a few real-world implementations of Blockchain (Bloomberg, 2017). We have to keep in mind that Blockchain raised from the fast-changing industry and technology, but there could also be a chance that it’s just only a contemporary complex foundation that expands our knowledge and that the implementation is too difficult on short term, so there will be a better solution in the future. Even Kris Henley, communications manager with the Centre for the Digital Economy at the University of Surrey warns for the complexity of Blockchain. “Blockchain is thus also turning out to be more complicated than most of us thought,” (Bloomberg, 2017).
One of the additional challenge of Blockchain is the regulation aspect. The government and other important institutions regulated the transactions of modern currencies. The adaption towards a more digital and fast transaction like Bitcoin is hard to implement and challenges a lot of parties (Deloitte, 2017).
How long will it take to implement or replace the Blockchain Technology?
References:
Bloomberg, J. (2017, 5 31). Eight Reasons To Be Skeptical About Blockchain. Retrieved from Forbes: https://www.forbes.com/sites/jasonbloomberg/2017/05/31/eight-reasons-to-be-skeptical-about-blockchain/#117dd7f95eb1
Casey, K. (2017, 4 27). Blockchain: The Pro’s and Con’s of a Technology that Will Affect our Future. Retrieved from Medium: https://medium.com/totvslabs/blockchain-the-pros-and-con-s-of-a-technology-that-will-affect-our-future-f67037da7d64
Deloitte. (2017). Blockchain technology: 9 benefits & 7 challenges. Retrieved from Deloitte: https://www2.deloitte.com/nl/nl/pages/innovatie/artikelen/blockchain-technology-9-benefits-and-7-challenges.html
Scott, N. (2016, 10 7). Blockchain: the internet’s second generation. Retrieved from Director: https://www.director.co.uk/blockchain-internets-second-generation-19926-2/
Interesting read Bo-Iris, thank you!
I am an optimistic person when it comes to blockchain technology. I think lots of people would like to see this technology being applied in several industries. Yet, it is still a complicated technical subject (also for me) which raises lots of questions all over the world. As you mentioned, the regulation of blockchain technologies is still a pain in governmental atmospheres. Nevertheless, I think blockchain technology will become the structure for future transactions involving anything of value, as people would like to get rid of ‘the middleman’.
Still, I believe there is still a long way to go, as big corporations like banks and even governments will try everything to prevent implementation of blockchain technology or come up with an alternative solution. As it is of importance for governments to regulate such systems, I believe we will be seeing blockchain technologies in the future where regulation can be realized by governments. But, I also believe there will be other technologies (and ways of digital payment e.g.) out there where this is not possible, as some people will always have the need of not being regulated by government or try to avoid such (Black markets etc.).
Still, those are just thoughts of mine, but I am very curious what the future will bring us considering this topic.
Thank you for writing about it!
Hi Bo-Iris, thank you for the interesting blogpost!
I want to zoom in on the last part of your post, where you introduce regulation of one of the challenges for blockchain/cryptocurrency. You state that ‘The government and other important institutions regulated the transactions of modern currencies’. I want to elaborate on why this is such an important challenge.
When discussing cryptocurrency, the fact that financial institutions and central banks have a lot of power in the current system is an important topic. Especially the creation of ‘fictional’ money’ is a potential disadvantage of the current financial system. The fact that banks are making profit by the process of money creation makes the current situation even more doubtful. Following this reasoning, this should make cryptocurrency even more interesting. Why is the regulation aspect then such a challenge?
Indeed, I agree that the fixed money supply rule of bitcoin sounds a bit more reasonable. However, the reason for banks to create money must not be forgotten. With bitcoin, the government and the central banks are losing their monetary power to support our economy. Many economists and central bankers point out that bitcoin’s fixed money supply rule does not respond to shifts in money demand and generates large fluctuations in prices. As a consequence, since society tends to not tolerate outright declines in wages, these fluctuations often carry over into unemployment.
A lot of specialists argue that this is the reason why cryptocurrencies will not take over the financial service industry. As fluctuations in cryptocurrency demand can’t be controlled, wild swings in prices will occur. We can take the recent fall in price due to Chinese government intervention as example (although it recovered relatively fast).
I think we all agree that cryptocurrency has a huge potential and may disrupt the financial service industry in the long term. However, as you already mentioned, it has to overcome certain stubborn challenges. I believe the stimulation and support of our economy by financial institutions is one of the most important ones. If we look solely at the money creation part, I believe this is one of the main reasons cryptocurrency will not take over the whole current financial system in the short term. However, I can imagine that in places with poor monetary policies and weak banks, the monetary-policy argument of money creation does not hold anymore. This is where cryptocurrencies could actually start disrupting the industry.
On the short term, the advantages you name (reducing cost, reducing delays, making it more secure and being efficient) should be reasons to integrate blockchain in the financial sector. However, I think disruption is probably a bridge too far for now.
Cheers,
374482rm
References:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
https://ftalphaville.ft.com/2017/06/07/2189849/guest-post-the-consequences-of-allowing-a-cryptocurrency-takeover-or-trying-to-head-one-off/
http://www.finanzen.nl/valuta/nieuws/Waarom-het-Chinese-ingrijpen-de-bitcoin-toch-niet-zo-deert-1002386072
https://internationalbanker.com/banking/impact-bitcoin-central-banks/
Hi Bo-Iris, thank you for the interesting blogpost!
I want to zoom in on the last part of your post, where you introduce regulation of one of the challenges for blockchain/cryptocurrency. You state that ‘The government and other important institutions regulated the transactions of modern currencies’. I want to elaborate on why this is such an important challenge.
When discussing cryptocurrency, the fact that financial institutions and central banks have a lot of power in the current system is an important topic. Especially the creation of ‘fictional’ money’ is a potential disadvantage of the current financial system. The fact that banks are making profit by the process of money creation makes the current situation even more doubtful. Following this reasoning, this should make cryptocurrency even more interesting. Why is the regulation aspect then such a challenge?
Indeed, I agree that the fixed money supply rule of bitcoin sounds a bit more reasonable. However, the reason for banks to create money must not be forgotten. With bitcoin, the government and the central banks are losing their monetary power to support our economy. Many economists and central bankers point out that bitcoin’s fixed money supply rule does not respond to shifts in money demand and generates large fluctuations in prices. As a consequence, since society tends to not tolerate outright declines in wages, these fluctuations often carry over into unemployment.
A lot of specialists argue that this is the reason why cryptocurrencies will not take over the financial service industry. As fluctuations in cryptocurrency demand can’t be controlled, wild swings in prices will occur. We can take the recent fall in price due to Chinese government intervention as example (although it recovered relatively fast).
I think we all agree that cryptocurrency has a huge potential and may disrupt the financial service industry in the long term. However, as you already mentioned, it has to overcome certain stubborn challenges. I believe the stimulation and support of our economy by financial institutions is one of the most important ones. If we look solely at the money creation part, I believe this is one of the main reasons cryptocurrency will not take over the whole current financial system in the short term. However, I can imagine that in places with poor monetary policies and weak banks, the monetary-policy argument of money creation does not hold anymore. This is where cryptocurrencies could actually start disrupting the industry.
On the short term, the advantages you name (reducing cost, reducing delays, making it more secure and being efficient) should be reasons to integrate blockchain in the financial sector. However, I think disruption is probably a bridge too far for now.
Cheers,
374482rm
References:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
https://ftalphaville.ft.com/2017/06/07/2189849/guest-post-the-consequences-of-allowing-a-cryptocurrency-takeover-or-trying-to-head-one-off/
http://www.finanzen.nl/valuta/nieuws/Waarom-het-Chinese-ingrijpen-de-bitcoin-toch-niet-zo-deert-1002386072
https://internationalbanker.com/banking/impact-bitcoin-central-banks/
An interesting post about blockchain, thank you Bo-Iris!
Indeed, there are currently no international regulations regarding blockchain while this could add significant value to blockchain technology. Especially given the international nature, thorough policy is needed to reach the full potential of blockchain. This could possibly, in my opinion, lead to the disruption of the current financial/currency industry.
However, the implementation of blockchain technology is currently accelerating in various ways. Private blockchain networks are increasingly being used within organisations in various industries (for example in the food industry [1]). In most of these cases, blockchain is far from being revolutionary or disruptive but it does offer new functionalities which primarily improve transparency and traceability. The use of blockchain could be enforced by (inter)national regulations but this might not even be a necessary. An optimised and fully traceable supply chain gives companies various benefits (having influence on suppliers, less fraud, etc.) which should already be a driver to implement such a system. An internal network could be the first step towards implementing blockchain but the benefits increase when collaboration takes place on an industry level.
Since supply chains are complex and are not bound to one organisation, a shared tracking system based on blockchain will be beneficial for the entire industry. This will not only decrease product recall costs are fraud incidents, it will most importantly favour the customer who will know where his food came from.
For the future, I foresee that more organisations will collaborate while discovering the possibilities of blockchain. Governments will follow later with regulations as it always takes time for new technologies (Uber, Airbnb, e.g.) to be regulated.
References:
[1] Aitken, R. (2017, August 22). IBM Forges Blockchain Collaboration With Nestlé & Walmart In Global Food Safety. Forbes. Retrieved from:
https://www.forbes.com/sites/rogeraitken/2017/08/22/ibm-forges-blockchain-collaboration-with-nestle-walmart-for-global-food-safety/#7c7946a33d36
Interesting blog Bo!
I agree with you that blockchain is a difficult concept that a lot of people wouldn’t understand. This will make it harder for the world to really integrate the blockchain technology into our current economy and systems. A great understanding of the concept is needed to implement it. I personally think that you simply need too many people who have to work on the concept to get it working. However, once the internet was a difficult concept for people to understand and now almost everything depends on the internet. I am wondering if blockchain will ever reach the same level of acceptance as internet, as a downside of blockchain is its high energy consumption. In a world where sustainability is becoming more and more important, it will be hard to accept a technology that involves so much energy consumption.