Blockchain technology is here to stay. Here are 10 reasons why the blockchain won’t be stopped:
We’ve seen technology waves before. The PC wave distributed computer power to everyone. The Internet changed the business world, rebuilding retail and publishing with digital bricks. The blockchain is a similar tsunami. It will wave its wand in every direction, at computer hardware, at computer networks, at all kinds of software and businesses large and small.
The Internet was made possible by a few simple things: a standard for linking to data, the browser and the domain name system. The blockchain is similarly simple. It is a programmable secure ledger. Nevertheless, it will be hugely disruptive.
The premier goal of the blockchain application is to create cryptocurrencies, of which there are now hundreds. They are similar to existing national currencies in one important respect: they have no underlying intrinsic value. As such, they are “faith currencies,” which rely upon the holder’s ability to buy things with it and to exchange it for other currencies.The premier goal of the blockchain application is to create cryptocurrencies, of which there are now hundreds. Click To Tweet
However, there is one crucial difference: with a cryptocurrency, the money supply cannot be tinkered with by politicians or organizations like the US Federal Reserve. The money supply is fixed by programmatic rules that cannot (in theory) ever be changed. National currencies are not under any threat (yet) because cryptocurrencies’ values fluctuate so wildly. But as these fluctuations gradually die down (as they will), national currencies will have direct competition
Government intervention cannot ever stop the blockchain. Blockchains are global, like computer networks, but legislation is local. Cryptocurrency users step around it. Countries that have legislated against cryptocurrency include Morocco, Bolivia, Ecuador, Nepal and China. All they have achieved was to prevent its open use.
For example, China is trying to stop Bitcoin speculation and to stop citizens who are using Bitcoin to transfer money out of the country. However, it has made no attempt to destroy the highly profitable Chinese Bitcoin mining operations. They have no desire to kill the goose that lays the golden eggs. The only truly effective way to stop blockchain technology is to ban computers.
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Since it became fully operational, Bitcoin has never been successfully hacked. Bitcoin’s blockchain mechanisms were designed to be impenetrable and have proved to be so in nine years of operation. Hackers have managed to break into cryptocurrency exchanges and steal Bitcoin, or steal from people’s PCs, but that’s all. Blockchain won’t be stopped because its technology is unique in that respect. It is the only existing monetary technology that has proven to be automatically secure against theft and fraud.
Currently, the most disruptive application of cryptocurrency is simply its use as a payment technology. On average, credit (and debit) card costs for a purchase of $100 will be in the range of $2.50 to $3.00 (2.5% to 3.0%). If you use a cryptocurrency, the cost of a $100 payment will most likely be less than 20 cents, and with some cryptos, as low as 2 cents (see BitInfoCharts for details). This is the reality that retail banks, credit card companies and all other payment services face. In the long run, they will not be able to compete.
Blockchain won’t be stopped and it is still in its infancy. As it improves, transaction costs will fall much lower than the figures mentioned above. This has an interesting implication. Right now, it’s not economic to process payments below about $10 through the traditional channels. The $2.50 to $3.00 cost quoted above roughly reflects the actual cost of processing the transaction through current payment systems.
Right now, it’s not economic to process payments below about $10 through the traditional channels.
On amounts below $10, it almost ensures that the retailer or the payment processor (or both) make a loss. With transaction costs of a few cents, micropayments (defined as payments of 75 cents or less) are practical. Once this capability kicks in, it will open up new fields of commerce that were previously not possible—like paying newspapers per article, or paying musicians per track, or cheap in-app purchases in games software.
The blockchain provides a public and fully secure way of sharing data. Think of it as a new unique type of database. This will be popular with many businesses, particularly those involved in complex supply chains, whether they involve shipping containers across the oceans or car parts from one state to another. The blockchain can cut supply chain costs as effectively as it cuts payment costs. This capability will, on its own, ensure that blockchain won’t be stopped as it marches forward.
The blockchain enables direct peer-to-peer (i.e. person to person) interactions. You may have thought the Internet did that, but in truth, every action on the Internet involves many intermediate steps. Blockchain systems can be truly peer-to-peer. Because of its peer-to-peer capabilities, several efforts to use blockchain technology to build a more robust and secure Internet are already underway.
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Perhaps the most important capability of the blockchain is its ability to link programmed behavior transactions it processes. Such programs are referred to as smart contracts and they enforce a programmatically defined behavior on the parties involved in a particular contract.
To take a simple example, there could be a contract where someone sells an item to another person with both parties agreeing that a payment would only be made if a third person (who acts as an adjudicator) agrees. What is new here is that the blockchain itself enforces the contract. Far more complex smart contracts can be built to deal with many business and legal situations (insurance, disputes, credit arrangements, guarantees and so on).
The final point is that the blockchain can automate trust. This counts as a specific application of smart contracts. There are many situations in business where trusted third parties are appointed to ensure the impartial execution of some arrangement. Almost all such situations can be represented as smart contracts and programmed immutably so that they enforce who is able to do what in respect of the contract. Accurate program code is more reliable than a human being.
If you want to pick just one of these points to think about, I recommend the first. The blockchain heralds a major new technology wave. Its time has come, and blockchain won’t be stopped.
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