The latest in our series of guest posts about Bitcoin and Blockchain. This time by Ankit Kalra from KPMG India Assistant Manager, Risk Consulting (Technology). These views are personal and do not necessarily reflect that of the organization.
What is Bitcoin, Blockchain and the difference between them?
Bitcoin is a crypto-currency and a payment system that was invented in 2008. They aren’t printed, like dollars or euros – they’re produced by people (and businesses) running computers all around the world, using software that solves mathematical problems (bitcoin mining). In a nutshell, the uniqueness of Bitcoin is that it’s open-source; its design is public, and nobody owns or controls Bitcoin and everyone can take part.
Bitcoin, today, faces two main disadvantages which is why the crypto-currency may never catch on: security and volatility.
• The virtual currency is not regulated by the government, which means there is absolutely no oversight and no protection against fraud. This is the main reason that bitcoin transactions have been associated with criminal activities.
• Everything valuable on the Internet attracts cyber criminals of different types searching for security breaches and vulnerabilities. For instance, once a Bitcoin transaction has been approved by both sides, it cannot be reversed without the permission of the recipient. So when hackers engineer the transaction, the cash is gone forever.
• Additionally, it is not a stable currency. Unlike the dollar, bitcoin is not influenced by exports or imports, gross domestic product, or the stock exchange. It lacks the historical track record of other commodities (like gold) that can guide its valuation. The value of bitcoin fluctuates wildly based on a variety of factors including: number of bitcoin transactions, widespread acceptance, understanding of e-money and what the market seems willing to pay. The volatility in prices has also made it difficult for most people to accept bitcoin as a regular means of payment. You need it to be accessible, you need it to be usable and you need it to be relatively stable,” says Jonathan Chester, founder and CEO of Bitwage.
An Internet-based currency is a smart and sustainable idea; it just doesn’t have the proper regulations in place yet. But that’s only half of the story.
The other half is about the remarkable rise of blockchain, the core technology underlying bitcoin that is enjoying unprecedented adoption by banks and big business. Yes, “Wall Street banks are buzzing about blockchain.”
Blockchain is the distributed ledger technology on which bitcoin is built. It’s is a public ledger of all Bitcoin transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block.
[The Future] Blockchain Without Bitcoin: Is it even possible when bitcoin supplies the financial incentive for people around the world, known as miners, to operate the ledger in the first place. Yes, it is. The answer is they are taking the core protocol underlying bitcoin, building their own version of blockchain (a “private chain”) and running it themselves. In practice, this will involve the banks rejecting a global federation of miners in favor of a handful of trusted verification partners within their own network—a process already underway. For instance, a group of 15 banks might agree that the ledger becomes official once computers from seven group members agree to record a set of transactions.
Blockchain is seen as the main technological innovation of Bitcoin, since it stands as proof of all the transactions on the network and has been gaining a lot of momentum among financial institutions, technology companies and beyond. And this is just the beginning.
Exploring possibilities in industry wide applications:
1. Nasdaq Inc., is testing the use of blockchain for settling and clearing trades in the Nasdaq Private Market, a marketplace for pre-IPO trading of shares in private companies. Source
2. Visa is looking to develop a “secure, scalable blockchain network” as it seeks to keep pace at a time when the payments industry is undergoing a seismic digital transformation. Source
3. IBM have connected Blockchain very well to IoT and actually ran a very interesting Proof of Concept on their platform called Adept. Source
4. Blockchain in healthcare can be of immense value for its ability to put patients in control and delivering a high level of trust. Here’s one article describing this pretty well. Source
5. The blockchain can improve record keeping in the public sector. Factom has reportedly partnered with the Honduras government on a blockchain program to record land ownership. The program’s goal is to reduce fraud and corruption associated with a government-controlled centralized registry by substituting that system with a transparent, distributed ledger. Source