Blockchain allows efficient tracking of resources and transactions in a more transparent way, while Cryptocurrencies complement the ecosystem by offering people a means to transact without any intermediaries.
Before the advent of Bitcoin (BTC) and cryptocurrencies in the financial market, the global economy has relied on Fiat currencies such as US dollars for transaction, investments and other forms of value exchange. It was not until the Great Depression that people started to realise that government-controlled fiat currencies are no longer as reliable as initially thought. In March 2020, US legislators passed a bill to save the US economy by printing more US dollars into the federal reserve.
The trust of government-controlled fiat currencies have also eroded in developing nations such as Zimbabwe and Venezuela, where hyperinflations occurred due to heavy money-printing and deficit spending in the hope to salvage their dying economies.
The prelude as seen during the 2008 Great Depression have prompted the people to devise an alternative plan in the case that fiat currencies fail in the future. In response to the 2008 financial crash, an anonymous figure or entity called Satoshi Nakamoto published the Bitcoin paper in 2009, which has since given a renewed hope to the people. Bitcoin, the first digital money (popularly referred to as Cryptocurrency) ever created to shift the power from centralised authorities such as governments and private organisations back to the people, is in the midst of revolutionising the concept of money.
Growing Use of Bitcoin and Other Cryptos
Naturally in countries like Zimbabwe, there is a growing interest in using Bitcoin and other cryptocurrencies over their national fiat currency. Some economists believed that cryptocurrencies are likely to disrupt the African continent with the new form of money. Since Bitcoin and other cryptocurrencies are not bounded by geography and government regulations, they are likely to emerge as the new go-to currency for various transaction needs in the country, and later influencing the rest of the continent to follow suit. Most importantly, Bitcoin and other cryptocurrencies are less volatile, when compared with their national currency. Users in Africa have also used Bitcoin mixers, a crypto mixing service to protect themselves from revealing their transaction data to the prying eyes. That is because when Zimbabwe's inflation skyrocketed in 2015, the government was forced to print $100 trillion dollar notes, kicking off with the irreversible hyper-inflation of the local economy.
In recent years, more governments and private organisations have learnt about the benefits of blockchain technology and are coming up with projects that could potentially replace the traditional commerce and financial systems in the years that follow. For instance, China aims to create the world’s first national cryptocurrency, driven by the risks involved by having contact with infected notes, and a population with heavy reliance on digital payments. Another reason that the national cryptocurrency will allow a level of traceability that would be inconceivable with physical cash. In addition to that, compliance solutions such as blockchain analysis which would enable the collection of personal information by organisations such as the government to facilitate the tracking of illicit activities.
The Disruptive Blockchain
The disruptive technology has brought about a suite of innovative solutions such as mixing service and a platform which allows any two parties to digitally transact with one another using an immutable, constant update, distributed ledger. In the case of Bitcoin, no single authority is relied upon to oversee the network, since the updates were performed by a globally distributed group of miners who verify Bitcoin transactions (blocks were mined for every successful verification) and get rewarded with Bitcoins. After the 2020’s Bitcoin halving event, every mined block will be rewarded with 6.25 Bitcoins for every 10 minutes, half of what miners received prior to the halving event.
Since Blockchain removes intermediaries like the financial institution, this has implicated traditional intermediaries such as auditors and lawyers, making such third-parties services obsolete in the future. For instance, any businesses using third party payment processors like Visa or Paypal are being charged with up to 5 percent for every transaction. Likewise, remittance firms like Western Union and Moneygram were utilised largely for the unbanked populations, charging over 10 percent for every transaction that requires up to a week to successfully process the payment. Unless these intermediaries adopt blockchain for their businesses, these entities may resemble the eventual demise of travel agents in the ‘90s. Combining the use of blockchain could certainly reduce their infrastructure costs while enhancing transparency, traceability and security.
Other potential use cases of Blockchain could be feasible in logistics, healthcare and even retail sectors. Although blockchain seems to be on track to disrupting the global traditional systems, there are certain flaws which require further improvements.
Existing Flaws of Blockchain
The cost of blockchain mining, an essential process to keep the blockchain operational, were regularly covered by mainstream news outlets. For instance, Bitcoin is using the widely-used Proof-of-Work (PoW) consensus algorithm to ensure that Bitcoin miners were rewarded for processing all transactions on the Bitcoin network. The downside for operating the mining hardware is the high power consumption required to mine Bitcoins. It has been estimated that the global Bitcoin mining consumes about 42 terawatt-hours, similar to the annual consumption of countries like Hong Kong or New Zealand. Luckily, there are other available consensus algorithms such as Proof-of-Stake (PoS) which could resolve the power consumption issue. However, implementing them on Bitcoin, Ethereum and other prominent blockchains require a consensus of the respective mining community, who will address different issues and challenges regarding the change in the mining consensus of say, Bitcoin.
In the event of a likelihood where mining syndicates were formed and perform a 51% attack, the entire Bitcoin system may be prone to hacks and other malicious consequences. Another point to note is the scalability of the blockchain, which needs to be addressed as the adoption of Bitcoin and other cryptocurrencies grow. Currently, Bitcoin can currently only process roughly seven transactions per second (tps), which is way less efficient than traditional intermediaries such as Visa which could process more than 50,000 tps.
Mitigating Privacy Concerns
In response to the growing attention of Blockchain, Bitcoin and other cryptocurrencies, countries which support the novel technology have introduced strong regulatory measures such as restricting trading in cryptocurrencies, in order to counteract various money laundering and criminal activities involving Bitcoin and other cryptocurrencies, through exchanges and bitcoin mixers. The infamous Silk Road case has gained regulators’ attention, further affirming their beliefs in coming up with the right regulatory approach to blockchain technology, Bitcoin and other cryptocurrencies.
Revolutionising Privacy in the Digital Age
As distributed ledgers like Bitcoin’s have the potential to enhance economic efficiency, defend against fraudulent activity and improve data quality and governance, increasing regulations by governments and private organisations could pose certain privacy issues for users of Bitcoin and other cryptocurrencies, who do not intend to go against the law, but are prone to having their personal information exposed to unwanted parties. To address such concerns, there are numerous privacy-related tools which are created to protect user’s privacy and anonymity.
According to the United Nations, they have recognised privacy as a fundamental of human rights, especially in this digital age. Fortunately there are various privacy measures an individual can undertake, such as using VPNs or Bitcoin mixers in order to obfuscate the transactions and break the links between the sending and receiving bitcoin addresses through the bitcoin mixing processes. Such services are growing in prominence as government bodies strengthen their control over regulation cryptocurrency transactions.
Shifting the control back to the People
While transactions of many cryptocurrencies such as Bitcoins are not anonymous and are publicly viewable on the blockchain, useful privacy tools such as a Bitcoin mixer will also mitigate the risk of unnecessary data leaks of one’s personal information, transaction activity and even their basic liberty as a citizen of the modern world. Governments and other private organisations may be gradually regulating the emerging new ecosystem of blockchain and cryptocurrency, but the next decade will see a greater control of the personal information, transaction records and eradication of intermediaries, ushering a new era of mankind in the digital age.