Here comes the bitcoin and blockchain boom
Some claim that cryptocurrencies like Bitcoin, Ethereum, Litecoin will never be used by the greater public as means of payment while others claim that the currencies are primed for mass adoption within the next decade. But there seems to be a broad consensus around the technology behind the currencies – blockchain. It is here to stay.
In the eighties, cryptographers and computer scientists began trying to devise a foolproof form of digital money, and a way to execute transactions and contracts without the involvement of third parties. It was the man, woman, or group of humans known as Satoshi Nakamoto who, with Bitcoin in 2008, solved the crux—the so-called double-spend problem. If you have ten dollars, you shouldn’t be able to pay ten dollars for one thing, then spend the same ten for another. This requires some mechanism for keeping track of what you have, whom you gave it to, and how much they now have. And that was the blockchain.
Today other cryptocurrencies such as Ethereum, Litecoin, Ripple and Cardano exist alongside Bitcoin. According to a report written by Gabriel Söderberg at the Swedish Riksbank (central bank) roughly 1,500 different cryptocurrencies are used today with Bitcoin still being the largest with an estimated market cap of $40 billion. The increased number of cryptocurrencies led to a warning in late 2017 from the Swedish Financial Supervisory Authority pointing to the high risks connected to ICOs (Initial Coin Offerings).
While the Swedish Riksbank doesn’t classify cryptoassets as money because they lack issuers and don’t have the necessary prerequisites to be used as well functioning means of payment, cryptocurrencies are used as money but to a very limited extent. According to Gabriel Söderberg, roughly 275,000 Bitcoin transactions were carried out on a daily basis in 2017 compared to 9,000,000 daily credit card transactions in just Sweden. Meanwhile, daily transaction values were down from more than $3.7 billion in late 2017 to less than $670 million in September 2018, according to a report by Juniper Research.
Cryptocurrencies are to a larger extent used as a form of investment. But the volatile nature has made investments in cryptocurrencies high risk. Bitcoin prices rocketed in 2017 when
prices soared from below $1,000 for a single coin at the start of the year to over $19,000 in December. But prices took a downward fall late that year which then continued in 2018. On October 25, 2018, Bitcoins traded at roughly $6,450 according to Coindesk.
The skepticism toward cryptocurrencies doesn’t only originate from central banks or other financial institutions. Law enforcement agencies claim that as many as a quarter of all Bitcoin users and roughly half of all the transactions can be connected to some form of illegal activity.
Europol, the European Union’s law enforcement agency, in June 2018 held a Virtual Currency Conference with 300 participants from 40 countries to discuss virtual currencies and to ‘foster the legitimate use of this virtual monetary system often abused by hackers, international drug dealers and the money movers of organized crime’.
Another con with cryptocurrencies is the environmental aspect. Journalist Nick Paumgarten writes in his article “The Prophets of Cryptocurrency Survey the Boom and Bust" in The New Yorker that ‘This year, it is said, the Bitcoin network will use as much energy as the nation of Austria, and produce as much carbon dioxide as a million transatlantic flights... There are open-air warehouses in remote corners of sub-Arctic Canada, Russia, and China, with machines whirring away on the tundra, creating magic money, while the permafrost melts.”
While sceptics are doubtful of the prospects of crypto currencies becoming widely accepted as means of payment, some say the opposite. Researchers at Imperial College in London in a paper, “Cryptocurrencies: Overcoming Barriers to Trust and Adoption", claim that bitcoin and other cryptocurrencies will hit the mainstream as a way of paying for goods and services within the next decade.
US reports also claim that Yale University has invested heavily in a cryptocurrency fund.
“Bitcoin, a digital gold”
Lasse Birk Olesen, a Dane living in Austria, knows pretty much everything worth knowing about cryptocurrencies and blockchains. He bought his first Bitcoin in 2011 when it traded at $1. Olesen is co-founder of Coinify, one of the world's leading blockchain payment providers and also consults governments around the world on blockchain technology.
He was one of the speakers at the recent SingularityU Summit in Stockholm where Telia Company as a founding partner of SingularityU Nordic got a chance to talk to him. Olesen predicts a bright future for cryptocurrencies but not necessarily the way they look today. “Pure or native cryptocurrencies like Bitcoin have a bright future, not necessarily in payments but in a store value. Gold has served as a back-up for centuries if people don’t trust the normal financial system, they tend to move money into gold. Bitcoin will become a digital gold, I think, where people can put their value into something totally independent of the normal financial system and independent of any monetary policy that a government chooses to adopt.”
Let aside the differences about the prospects of cryptocurrencies, there seems to be a wide consensus that blockchain – the mechanism behind cryptocurrencies – is here to stay.
A blockchain is an evolving record of all transactions that is maintained, simultaneously and in common, by every computer in the network of that blockchain. The ledger, the record of every transaction in the network, is distributed among the users which enables them to track every transaction which is made in the network. With blockchains, the records, under a kind of cryptographic seal, are distributed to all and belong to no one.
Telia Company was part of the first digital real estate transaction in Sweden last summer where blockchain was used to carry out the transaction.
Lasse Birk Olesen explains that a majority of the blockchain usage today is connected to financial transactions.
“But we also see blockchains in areas not related to financial transactions like patent administration. Let’s say that you are a researcher and you have some valuable data which you don’t want to publish yet. But when you apply for a patent you need to publish your research. What you can do then is to make a cryptographic stamp and upload it to the blockchain. You don’t have to expose the data but a later point in time you can prove that at that point in time you had this data,” Olesen says and continues: “There is also distributed computing where researchers often rent supercomputers from a university. But now we have projects like Golem where you can rent out available computing power in your laptop to a blockchain network and then someone will pay you for your idle computing resources. That also happens for storage. Instead of storing your info in a cloud service which can be hacked, you can do it in a distributed storage, a blockchain project where you know that the data is encrypted and that no one else can access it.”
E-krona on its way
Blockchains are also increasingly used in supply chain processes. Instead of having paper documentation to track the origin of, let’s say apples, transport companies can store the information using blockchains which allows them, and buyers, to digitally track the apples from the orchard to the store.
Companies like Maersk, IBM and Walmart have introduced blockchains into their systems.
So, while there seems to be different opinions regarding the future of cryptocurrencies, blockchains seem to be on the brink of being widely introduced. It doesn’t necessarily mean that we will not see stable digital currencies in the near future. Many central banks — including those in Canada, Singapore, and England — are studying and experimenting with blockchain technology and cryptocurrencies.
The Swedish Riksbank, however skeptical to cryptocurrencies, is since 2016 investigating an introduction of a digital complement to cash, an e-krona. On October 26, 2018, The Riksbank stated that it will now start testing different technologies for introducing the e-krona.
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Listen to Telia Company’s podcast with Jason Bloomberg, President of Intellyx, and Stephan Nilsson, founder and leader of the Norwegian Bitcoin Association discuss the pros and cons of bitcoin and the blockchain technology.
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Watch a video with Lasse Birk Olesen explaining more about bitcoin and blockchain.