Rise of blockchain: an unintended consequence of cryptocurrency?

Blockchain technology has the potential to streamline and accelerate business processes, increase cybersecurity and reduce or eliminate the roles of trusted intermediaries.

There was a time in the recent past when the new-age crypto Moghuls roared that currencies are real and chains are incidental.

The advancement of the digital economy has already disrupted industries in India and across the globe, impacting diverse sectors such as media, music, FinTech, government, and transportation.

Adding to this revolution is the disruption of money itself due to the fast-paced growth of cryptocurrencies in the recent times, which is fascinating, to say the least.

Cryptocurrencies have gained significant attention, with an active user base in excess of the 5 million mark and growing exponentially. The speculative mania surrounding cryptocurrencies has elicited many reactions, being compared with previous asset bubbles such as the technology bubble of the 2000s and the Dutch tulip bulb bubble in the 1630s.

Bitcoin was the first cryptocurrency to be launched and it continues to be the leader despite the presence of over 1,500 cryptocurrencies at the time of writing this article. While the jubilance of the rise of bitcoin continues, it is important to save the ‘idea’ and the interest in those who believe in that ‘idea’.

The idea behind cryptocurrency

The initial ‘idea’ behind cryptocurrency was secured, fast and low-cost transactions without the need for intermediaries such as banks and clearing parties.

With the growth of digital across sectors, this idea held very high relevance for the global economy, especially in the fields of payments, international remittances, and smart contracts. It had great potential to go mainstream, with a wide range of use cases across sectors.

However, this initial idea has diluted over time due to its prohibitive costs, especially with respect to bitcoin and other leading coins, making it nearly unusable. Questions have arisen on upgrading the network to manage more transactions.

Another problem is that we have no way to figure out any coin’s value unlike public companies with earnings and expenses. Bitcoin also has a limited number of use cases, most of which are transactions between community members. Lastly, it has become highly speculative, volatile and literally out of reach for the masses.

Today, governments and central banks across the world, being key stakeholders in any economy, are studying the potential and implications of cryptocurrencies.

Tax implications, anti-money laundering, and consumer protection are on top of the agenda of various central banks and governments while evaluating the future of cryptocurrencies and their role in/impact on the world economy. They have also brought out regulations, working norms and advisories to protect consumer interest.

Rise of blockchain

So, will the hype around bitcoin see the end of cryptocurrencies? I don’t think so. I think what is missing around cryptocurrencies is their legitimisation, utilising them in everyday commerce.

For users to embrace cryptocurrency as an alternative to fiat currencies, the underlying scaling issues of the bitcoin blockchain network must be solved. Then, the question that arises is whether there is a challenge with the underlying technology. The answer is No!

Rather, what will be truly encouraging to see is governments starting to use blockchain, which is the underlying technology of cryptocurrencies, as it will lead the way forward in a positive direction for the financial ecosystem.

Thus, it is time for blockchain to take centre stage. And the sooner it happens, the better it will be for the financial ecosystem, as use cases around it are on the rise in India and across the world.

Use cases of blockchain

Blockchain technology has the potential to streamline and accelerate business processes, increase cybersecurity and reduce or eliminate the roles of trusted intermediaries.

Blockchain has many more uses beyond just currency — for example, in financial services, transferring equities or other financial instruments in blockchain environments with potentially faster settlement at lower costs, and, in the automotive sector, blockchain hosting all-inclusive records of an automotive ecosystem, wherein ownership, financing, registration, insurance and service transactions could be tracked together.

Other blockchain scenarios include an embedded health care system, no digital rights theft, government tax enforcement and industrial IoT among others. And, most importantly, the key impact of blockchain technologies is powerful decentralisation and consensus.

However, the debate remains with currency usage itself, which began with the rise of blockchain in the first place. Once new standards are in place that are accepted by all participants/stakeholders, the protection of investors and users alike has a greater chance of success.

The future of cryptocurrency and blockchain: Time for a reboot

As it was famously said in the Venus Project, ‘The original intent of the market economy was based around real, tangible, life-supporting goods for trade.

Early economists never fathomed that the most profitable economic sector on the planet would eventually be in the area of financial trading, or so-called investment, where money itself is simply gained by the movement of other money in an arbitrary game, which holds zero productive merits to society.

Regardless, the door for such seemingly anomalous advents was left wide open by the fundamental tenet of this theory. Money is treated as a commodity, in and of itself. In all societies, money is pursued for the sake of money and nothing else’.

Now, replace the word ‘money’ with ‘cryptocurrency’ and read it again — that simply explains the ills and future of cryptocurrencies.

The Finance Minister as part of Union Budget 2018 stated that the government does not consider cryptocurrency as legal tender but will adopt the blockchain technology to encourage the digital economy, which infers the vast potential and application of the blockchain technology, and at the same time makes it clear that cryptocurrency has a long way to go.

The need of the hour is to stop cryptocurrencies from being used as a vehicle for unscrupulous gains such as ransom cyber-attacks, create a narrative that is devoid of any similarities to the current financial and monetary systems and, finally, envision a brand new world that is easy, efficient and equitable.

We are still far from a perfect blockchain technology. Having said that, I believe that blockchain has the potential to change our world. By removing duplication of effort and unnecessary processes, and guaranteeing greater integrity of data, building consensus, it is going to bring us a more efficient and more secure way of doing business than ever before.

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The article was first published in ET Tech here