Blockchain is the new virtual gold. Or that’s what some say.
Blockchain and Bitcoin are new and highly complicated. They are not understood well by the public; nor most investors for that matter.
Nevertheless, they’re drawing tremendous attention — both from dreamers of a more equitable world, and investors seeking financial gains within the traditional global currency exchange system.
At the recent CoinGeek Toronto Conference, a frenzy of both excitement and criticism by international investors shows that money is flooding into this speculative technology. Blockchain seems poised to have some economic repercussions, but no one is sure what those will be.
A quarter of all Bitcoins. That’s what some investors want to capture.
Blockchain and Bitcoin are synonymous because Bitcoin is a “crypto-currency” that relies on a technology called blockchain. Blockchain is a ledger, a way of keeping track of things. Because records are saved across computers, you cannot tamper with them. De-centralization means back-up copies exist abundantly and securely.
In other words, blockchain helps Bitcoin ensure each coin is real. You can not simply copy and paste to double the number of Bitcoins you have.
Our global currency system already runs on a ledger. All currency fluctuates in value but is backed by nothing in particular. It used to be exchangeable for gold, but Nixon nixed the gold standard. Now the dollar’s value is fiat — value as a guaranteed means of exchange. At best, currencies today can be described as backed by oil.
Ever since the world accelerated the process of globalization in the 1970s, capital has been gradually moving more freely across borders. Free Trade, trade without tariffs or competitive barriers, opened markets previously inaccessible. Blockchain seems poised to deliver the next step in globalization.
Take emerging markets. Engaging with them means dealing with less institutional trust. It is dramatically more risky and expensive to invest in Zimbabwe or Argentina than more developed markets. If a country has no national institution reliable and able to stabilize their currency against hyperinflation, then a de-centralized system like blockchain can stabilize inflation. It can store value much like gold.
Alternatively, let’s say investing in a mining operation is more costly than the return value potential. The Blue Hill Foundation gives an example of democratizing access to investment. Let’s say you want to make a micro-investment. Institutional costs (like brokers) are expensive and typically require a minimum investment; perhaps $10,000. Blockchain can help remove institution costs by serving as a trusted reserve system. That way, people with less capital can invest in the mining operation; especially if the mining operation is in Zimbabwe. This helps the mining company, and it helps small investors and big investors, but it hurts the traditional, trusted institutions.
Conversations about the application of blockchain currently circle around intwining payment and authentication (material or informational). Cryptocurrency could serve as a new kind of artificial gold, or it can be a way to track the movement of gold reliably. Alternatively, blockchain can fight fake news by validating key information. Healthcare insurers can even use blockchain to strengthen the accuracy of their data.
Once the current limitations of blockchain are solved, namely its huge energy requirements, expect to see an explosion of applications and ideas.
