What will be left of Bitcoin when the hype ends

Bitcoin
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There is a great deal of real value in some cryptocurrency technology

There are a number of overlapping technologies involved in understanding cryptocurrencies. Currency itself is a concept which people deal with every day but may not have considered more deeply than the level required to transact a purchase. Behind cryptocurrencies lie blockchains, a second level of detail. There are now cryptocurrency phones, which connect to standard phone networks using standard data plans and can help you conduct your next generation currency trading from wherever you happen to be. These things are all happening at the same time as other technological marvels – from The Internet Of Things, to 5G, Artificial Intelligence (AI) and beyond. It can hardly be a surprise when people turn off from considering these things, given the overlapping complexity they present.

Few doubt that much of the talk in the media and industry is based on hype around these new technologies. The question is, where does the real value begin. And sitting underneath Bitcoin and its competitors (the 1500 or so direct alternative cryptocurrencies that Bitcoin has.)

The real value when Bitcoin is done is in Blockchains

A Blockchain is simply a distributed ledger  a list of who owns what asset, which is stored in multiple places – on multiple computers – at once. The distributed nature of the chain is what give them their value. At a principal level, Blockchains serve many of the purposes that banks currently do, they provided a medium both ends of a transaction can trust to act fairly. They also neatly sidestep many of the problematic aspects of banking, however. They can perform a host of useful functions beyond recording who owns what Bitcoin. They are hard to hack, for example – because hacking them would require multiple parallel successful attacks (on every blockchain miner in the system at once.)

Blockchains can have intelligence and decision making built in to them, in a way that current asset ledgers do not. Since they are computer and therefore algorithmically based, ‘IF / THEN’ statements can be built in to them – so called ‘smart contracts’. For example, once a Blockchain received a reliable notification that ‘money has been paid’ and ‘identity is confirmed’, they could transact legal ownership of an asset such as a house. This sort of facility cuts out a collection of middlemen, within the housing chain, and provides transparently reasonable terms, which cannot be interfered with and with which everyone involved can agree, before the process starts.

Blockchains then are more useful than cryptocurrencies and are likely to be around long after Bitcoin has been relegated to the bubbles of history. Cryptocurrencies require a Blockchain to survive, but a Blockchain does not require a cryptocurrency to function.

Where could I invest in Blockchains?

Ripple is the most successful Blockchain company in the world at the moment. The publicly traded company has seen its share price grow even more than Bitcoin’s value, following successful trials of their technology. It’s not hard to imagine Ripple, or another Blockchain product being used to store and provide reliable proof of some of the most valuable and currently difficult to manage aspects of our lives.

A Ripple Blockchain could be used, for example, to provide proof of identity with a digital passport, digital birth certificates or digital driving license. Other assets, like car ownership, could also be stored in a Blockchain making them easier to transact and cheaper to administer. Governments will be particularly interested in lowering the cost of overseeing these key life documents.

Blockchains are not, however, a panacea. As they stand have one major drawback – the enormous amount of energy and reasonable amount of time required to transact something through them. Solutions are being worked on.

Bringing it all together

Even Warren Buffet has called Bitcoin ‘Rat poison squared’. Buffet is one of the world’s smartest and most consistently successful investors but he is saying something which is common sense. Cryptocurrencies essentially amount to private companies printing the sovereign currencies of the countries of the world. When Bitcoin sells $3bn of cryptocurrency, they are effectively adding that amount to the money supply. Bitcoins are also much harder to tax than existing currencies. Governments simply will not allow private companies to produce currencies which undermine their ability to usefully influence the

Given the huge profits made by many of the world’s banks, regulators in key countries are closely watching Blockchains to offer some long needed innovation in the field. Long after Bitcoin has crashed, Blockchains will be around and providing real, measurable value, to the economy and us.

 

This guest post was written by Ralf Llanasas from What Phone.

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