Getting Acquainted with Blockchain

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Australian Economy, Macro Economics

Blockchain is the world’s leading software platform for digital assets like bitcoin, ether etc. Blockchain technology is a decentralized ledger of all transactions across a P2P network. Using this technology enables a user to participate and confirm transactions without the need of a central clearing authority. Like money and gold, the digital currencies including bitcoin allow parties to exchange value. Unlike their predecessors, they are de-centralized, and people can exchange value without intermediaries that translates to greater control of funds and lower fees. For the use of digital currencies, no central authority or banks are needed, in general, to manage the transactions; and the issuing of digital currencies is carried out collectively by the network.

Blockchain as a Service (BaaS) is when an entity sets up blockchain connected nodes. It is worth noting that Microsoft was the first vendor that offered BaaS via Azure Blockchain Service in 2015; and has even launched Enterprise Smart Contracts for users in order to build their own blockchain services.  Recently, Amazon penetrated into the newly emerging “blockchain-as-a-service” (BaaS) offering, and launched AWS Blockchain Template that enables to directly compete against offerings from Oracle Corp and other players. Blockchain technology has its own benefits to offer businesses like time & cost efficiency, decentralization, fraud reduction, transparency, records keeping etc. The technology could cut the costs of the total amount for cross border payments by 2% to 3%. Blockchain storage costs is also efficient as they could control the cloud computing price up to a great extent.

Nasdaq has been at the forefront of the blockchain revolution

Nasdaq played an integral part in the blockchain revolution and is even considering opening a cryptocurrency exchange in the future. Cryptocurrency exchange Gemini also reported that they are teaming with Nasdaq to monitor trading activities on its platform. Nasdaq is currently using its technology to monitor for abnormal activity in its marketplaces and Gemini would leverage Nasdaq technology to monitor its major trading pairs, particularly the crypto-to-crypto pairings and those involving the U.S. dollar. The world’s second largest stock exchange, NASDAQ is planning to launch futures contracts for Bitcoin by 2018. This will be the step forward to be part of blockchain revolution.

Some Popular Digital Assets

Bitcoin and Bitcoin Cash: Bitcoin Cash is the peer-to-peer electronic cash (the hard fork of the bitcoin, which has been the first cryptocurrency) and fully decentralized, with no central bank and no trusted third parties to operate. Overstock.com started accepting bitcoin in 2014. Lake Tahoe property sold 2,739 bitcoins, valued $1.6 million in 2014. Manhattan real estate started to accept bitcoin in 2014. Cryptocurrency market is over $330 billion as of March 2018 and Bitcoin accounts for a significant portion of this. For transactions post August, the ledger split will be separate between Bitcoin and Bitcoin Cash. This means any Bitcoin acquired after the split does not include any Bitcoin Cash, and any Bitcoin Cash does not include any Bitcoin. Acceptance of Bitcoin would increase going forward, with Mc Donald’s seeking to accept bitcoin by end of 2018. Argos also intends to start accepting Bitcoin payments by this year end. It is worth considering that Bitcoin (currently rebounding to $9,200 after a fall noted on April 26, 2018) is anticipated to touch US$100,000 per coin within a few years from now and may be US$250,000 by 2022.

Ripple (XRP): Founded in 2012, Ripple offers one frictionless experience to send money globally using the power of blockchain and got major interest from businesses including three Japanese credit card companies. Customers’ payments can be processed instantly from anywhere in the world in a cost-effective manner. Banks and payment providers offer the digital asset XRP to further reduce their costs and access new markets. However, Bitcoin and Ripple have contradictory approaches to cryptocurrency. Bitcoin is a decentralized approach while Ripple is marketing its cryptocurrency as an asset transfer solution for major calculations.

Ethereum (ETH): Ethereum is an open-source, public, blockchain-based distributed computing platform and operating system featuring smart contract functionality. It supports a modified version of Nakamoto consensus via transaction-based state transitions. Ethereum rose over 12 times from March 2017 to 2018 March. Recently, Amazon Web Services (AWS) launched blockchain templates for Ethereum and Hyperledger Fabric, for a faster and convenient way to create and deploy secure blockchain networks with open source frameworks.

Litecoin (LTC): Litecoin is a P2P cryptocurrency and open source software project released under the MIT/X11 license. The Creation and transfer of coins is based on an open source cryptographic protocol. LTC recently got listed in Korbit in Korea; but has faced pressure as they ceased operations of their much-anticipated digital payments app, LitePay, less than a week after its launch. LitePay also released a statement to customers for quoting a “less than transparent” management from the owner. But the sentiment has been improving as recently one user transferred $99 million worth of Litecoin to another wallet owner.

EOS: EOS is also a blockchain like Ethereum which uses a consensus model called “delegated proof of stake”. This model curbs monopoly while offers incentive but the drawback of this model is that it leads to centralisation. Huobi Pro, originally from China, recently reported that they would become a block producer on the EOS blockchain. Huobi Pro is third major cryptocurrency exchange in the world with > $2 billion trading volumes. On the performance side, EOS delivered outstanding returns this year, with experts seeing it to rally to a fresh all-time high.

VeChain (VEN): VeChain was incorporated in 2007 as a Facebook App while the full-blown mainnet and VeChain Thor (VET) tokens would be launched in June 2018.  VeChain has attracted investors’ attention as it has been growing when Bitcoin and Ethereum are seen to face pressure. VEChain generated over 25% of returns in this year to date.

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Source: coinmarketcap.com

Recently, management of VeChain addressed VeChain’s blockchain solutions for luxury and automobile industry. Jerome Grilleres, General Manager of Europe of VeChain, said that they are working with Renault to develop a car-maintained book connected on the Blockchain. Jerome Grilleres said that VeChain is developing solutions to counterfeit products in Luxury industry as these Companies do not want their original priced products to be sold at higher prices.

Outlook

After a blockbuster performance in 2017, the overall blockchain sector has been facing challenges in the first few months of this year due to pressure from several regulatory bodies and US Securities and Exchange Commission (SEC) investigations into companies that added “blockchain” to their titles late last year. Several experts from the financial industry have mixed opinions over the potential of cryptocurrencies.

On the other hand, the long-term outlook of the fundamental technology looks lucrative as major institutions are adding blockchain technologies to their portfolios. J.P. Morgan developed its blockchain technology called Quorum two years ago and recently reported that they are considering a spin-off of its marquee blockchain project Quorum believing that independence from the bank could increase the platform’s appeal. But since blockchain is still in its early phase, several players are making efforts to capture the potential in this space leading to rising competition.

As per some market surveys and predictions over the last one year or so, 80% of bankers expect commercial adoption of blockchain technology by 2020, while 90% of major North American and European banks are exploring blockchain options. Further, over 55% of healthcare applications intend to adopt blockchain for commercial deployment by 2025. Global blockchain technology market is now expected to reach over $60 billion by 2024 and proffers good opportunities in the sector.

Looking at this, ASX listed companies like Change Financial Limited (ASX: CCA), a fintech, banking software and blockchain investment company, are investing in the underlying technology. For example, CCA invested in ivyKoin, which is a blockchain-based cryptocurrency.

Thus, with this new technology platform, it will be worth to watch out for significant developments and the way companies phase out the old laggard technologies over the coming years while cryptocurrency still stays a little away from mainstream given the mixed outlook.


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