Blockchain technology proposes a new paradigm capable of infiltrating, interconnecting and in many ways, optimizing every existent system of organization. The advantages are counted for dozens, on the other hand, the drawbacks are very few in comparison, and most of them are tied to technological, regulative or scalability issues that will be torn down with the mere pass of time. Throughout this course, we will learn about the revolution that blockchain proposes, and what is the path that led us here. Blockchain’s evolution as technology can be understood as a trip through different stages, each of them reaching new heights in terms of functionalities, empowerment for the user and capabilities of exploring its potential. The first one of these stages is Bitcoin.
Bitcoin was the initiative that brought the blockchain concept with it, and that resulted into the creation of what can be called blockchain 1.0. But… What is really Bitcoin? Bitcoin was introduced in 2008 by an anonymous user, or potentially a group of people, identified with the alias Satoshi Nakamoto. Nowadays, Bitcoin is the largest and most notorious digital currency, created and held only electronically. And its price has gone from under a cent of euro 8 years ago, to over 4000 nowadays. Let’s picture it with a basic calculation. If back in 2010, you would’ve invested $5 worth of Bitcoin, in 2017 your investment would’ve been turned into $4.4 million Crazy right?
Well let’s just remember that in May 22nd 2010, a user spent 10,000 BTC in exchange for two pizzas. Nowadays, that’d be the approximate equivalent of $22 million. Let’s understand the reasons behind this progression. Bitcoin has a Peer-To-Peer structure. That means they are transferred from user to user through the internet, and without going through a bank or any other financial institution. This implies, among other things, a huge reduction in transaction fees and the possibility of using them in every country. In parallel, studies suggest that the implementation of blockchain technology in the banking sector could reduce their infrastructure costs by a 30%. In fact, 90% of the major North American and European banks are exploring or testing blockchain applicability.
The value of conventional currencies is determined by the demand for them in the market, just like the value of goods and services. Cryptocurrencies are not an exception to that, with a minor but important difference. Their rise or downfall is closely tied to the willingness of markets and countries to accept them and consider them a valid method of payment. Different countries have taken different approaches towards it. Japan has recently accepted Bitcoin as a legal method of payment, but keeps treating it as an asset, not a currency. India constituted a committee to evaluate the implications of accepting cryptocurrencies, and everything points towards the legalization of the currency.
Among other things, the legalization of Bitcoin as a method of payment would mean allowing the taxation of investors and their profits. Russia, a former declared enemy of cryptocurrencies, has taken a U-turn and now aims to legalize their use by 2018. Low confidence in local currencies, especially in particular regions of Asia has boosted the demand of Bitcoin as well. To date, Bitcoin have a market capitalization of $77 billion, and this figure is expected to keep growing in a steady way. There are many geopolitical and economic reasons for this meteoric growth, including the recent change of presidency in the United States, rising debt levels in some of the major economies around the world.
Experts on the topic defend that this will motivate sovereign countries such as Russia or China to accept Bitcoin as a valid alternative to the USD, which would boost Bitcoin’s market price even more. Just in 2017, the price has soared by a 125%. Bitcoin has gone from a promising concept to a powerful currency whose movements affect entire markets. Its success was so big, that it inevitably motivated the sprouting of hundreds of new cryptocurrencies, pursuing the same success. All of them differ between each other in its purpose or value proposition, but are based in blockchain technology. Here we have some of the most prominent ones.
Ether in second place, with a market capitalization of $23 billion, Ripple in third, with $6,7 billion or LiteCoin fourth, with $2,5 billion. The cryptocurrencies market has a volume of $120 billion. Let’s take another one as an example. SolarCoin is a digital asset created as a mean to reward global solar electricity generation. PV panel owners can retrieve SolarCoins by simply generating solar electricity. 1 SolarCoin is granted to the producer for every 1 MWh generated. It’s the proof that cryptocurrencies can be used as a mean to incentivize and reward certain behaviors. One of the main reasons why digital currencies are increasing their market capitalization this much is that, like gold, they are not backed by governments.
This illustrates the rising of blockchain technology as a method of conducting online payments. Just one among the many fields where blockchain has shown a tremendous disruptive potential. But how does blockchain really work? What is that makes blockchain really special? Stay with us to discover it.