Part 3 of What is Blockchain Technology? Is It Another “Tidal Wave” of Transformation ?
While cryptocurrencies make it easier for us to do transactions in the developed world, the undeveloped world is where you begin to see huge impacts. Billions of people (around 80% of the world population) exist outside the traditional banking and credit system. They have local currencies that are extremely volatile and useless on the open market.
Cryptocurrencies like BitCoin become the currency that they can earn, save and spend. They can store it for free—no banking fees or credit checks, they can use their (smart-) phones for transaction management and it is “corruption-resistant” (partly through traceability of every transaction). With cryptocurrencies like BitCoin, LiteCoin and Ether, no local government or financial institution controls its value or exchange rate. While Bitcoin is a long way from making inroads in these markets, many can see the possibilities. I would imagine that money transfer services—like Western Union—that rely on their exorbitant fees for transactions from the expatriate community back to their home countries in Asia, Latin America or Africa are trembling in fear for their business model. If a person has a cell phone, he or she has the potential to access cryptocurrency and near-zero transaction costs.
While the future is quite exciting, I like to tell people that until it is “grandma ready,” Bitcoin (or Ether) use is not going to explode. That is a long way off. In most areas of the world, the general public still struggles to understand how cryptocurrency actually work.
Who controls the cryptocurrencies?
It isn’t a big surprise that governments and banks are currently and generally uncomfortable with Blockchain technology. They lose their traditional control over currency and transactions. However, some governments and banks are adapting, developing their own Blockchains and Blockchain-based business models and as they see the technology’s potential.
What about broad acceptance and trust? Since the invention of money, people trust in governments as issuer of currency (with mixed success…). Emotionally, it appears to be easier to trust in a “strong and visible entity” like a government over a technology (that many people might not understand). And looking at financial literacy rates—even in countries like the USA—it is fair to say that most people do not understand money. At all. Period.
For many in the Blockchain community, as well as experts of the financial system, it begs the questions: are governments more trustworthy than a global community and open technology? As cryptocurrencies become more common and accepted, it is likely that governments will lose this trust advantage. The deregulation of the telecom markets would be an example of change in public perception. So, some future thinking governments (e.g. China, Singapore, Estonia…) are exploring ways to launch their own Blockchain based virtual (crypto) currency to drive technology adoption AND keep people’s trust.
While governments print money, Bitcoin is “mined.” There is a brief article, How Bitcoin Mining Works that will give you a quick overview of mining. While an individual with the right hardware and software used to be able to mine for coins, companies (and governments) have access to powerful and mining-specific devices that make mining far too expensive for individuals. Individuals today would spend more money on hardware and electricity versus what they can earn in “mining fees”. They lack the computational power and access to cheap (often hydro) energy that these now professional mining “pools” have.
Currently, 60% of all Bitcoin mining is done in China and the percentage is growing. In late 2015—only 8 months ago, 40% of all Bitcoin was mined there. With a new block is created every ten minutes, you can see why this percentage is growing so quickly.
Is Blockchain technology going beyond cryptocurrencies?
Considering that Goldman-Sachs has invested over $500 Million and Microsoft declares “Blockchain” as one of the key “must win” workloads for their Azure platform and business, I would say “Yes.” And in China, Tencent—the powerhouse behind WeChat, an app that boasts over 300 million users worldwide—recently joined more than 30 technology and financial firms in China to form the Financial Blockchain Shenzhen Consortium. The 31-member strong group features a wide spectrum of finance and tech firms involved in capital markets technology, securities exchange, trading platforms, life insurance and banking.
Governments are beginning to use blockchain technology, albeit for different reasons. Asian markets are embracing the technology to create “trust in a trustless environment.” Emerging markets in Asia Pacific, particularly for governments in places with long histories of corruption and ongoing problems with government transparency, see this as a way around corruption.
Countries like Estonia are using blockchain technology to secure over 1 million patient healthcare records 1 and even provide digital residency.
Circular Economy And A Blockchain Driven Sharing Economy?