03 April 2015

"Reports of Bitcoin's Death Have Been Greatly Exaggerated" (With Apologies to Mark Twain)

Source: HuffPost Blog

Peter Greenhill
Many column inches have been written recently about the imminent demise of the father of all digital currencies. A massive Bitcoin price drop since the dizzy heights it enjoyed a year ago, UK clearing banks refusing to open accounts for companies in the sector (even those merely supplying software or services to the sector) and the hacking Europe's largest Digital Currency Exchange, Bitstamp, have all been widely reported and referred to by the naysayers.
But let's open the kimono a little and look behind those news items.
The security scares
Firstly let's address the Bitsmap hack. Bitsmap had, in fact, around 90% of clients' coin safely held in cold storage. Less than 19,000 BTC (worth about $5 million at the time) was stolen, and within days the company had fixed the problem and repaid any customers who had suffered losses.
As it happened, on the same day as the Bitstamp hack a security flaw was revealed in Moonpig's security software, exposing the card details of nearly three million customers who use the online greeting card company's mobile app.
The fact is, a number of systems have security weaknesses, or the potential to be hacked. The recent Kaspersky report said that more than 100 banks have been hit worldwide with around 1 billion dollars stolen from banks in 25 countries.
But with Bitcoin, unlike fiat currencies, the transactions that are attached to it are recorded on blockchain technology, meaning it is arguably much easier to trace these transactions than it is to track the movements of physical cash, and therefore more secure.
Nonetheless, isn't Bitcoin inherently unlawful and sinister, some may ask? Well as one analyst put it, "If someone stole some gold from a safe, it is not the gold's fault but a lack in the security controls of the owner of the gold". Bitcoin itself is not the problem.
The banks
Now let's address the stance of the UK clearing banks. Behind their overt statements regarding digital currency, it has been widely reported that most, if not all, of these banks have internal projects to look into possible introduction of Bitcoin into their systems in the future.
Changes in "faster payments" and the expansion in the numbers of UK clearing banks recently announced by the UK government should also allow new entrants to the sector to have banking facilities.
We can only marvel at the number and quality of entrants to the DC world (apologies to comic book devotees). The key here is that the vast majority of these companies are founded by entrepreneurs, business leaders and the highest level of software technicians with extensive experience of the commercial world. They really understand where cryptography can really make a difference to legacy payment and transaction systems that are truly creaking at the seams.
The price drop
Admittedly, the price of Bitcoin is not what it was (its fall actually mirrored that of the global oil price drop), but as one of the purest forms of supply and demand the Bitcoin price has shown a recent recovery (unlike oil for now).
In terms of Bitcoin and its comparative position against other Alt currencies, the jury is out on whether just one coin will prevail or if several will co-exist in the future. Could the banks themselves create their own coin? Could Western Union even introduce a value transfer system that would be far cheaper to operate than their current method of helping migrant workers send home funds? Is the future an asset based coin or even such a coin issued by a government?
Time will tell, but what many experts in the market do agree on is that what we should be getting really excited about is the blockchain itself; digital currency is just the first application to market.
The blockchain future
So what can we expect to see from the blockchain in the future? Some examples that we have already heard of on the Isle of Man include establishing repositories for registers of any type, including property registers, company registers and disaster proof legal document storage.
Further afield, iNation is proposing holding validated passport details on the blockchain. Whether border controls will allow travellers to just use their phones to go through immigration just yet is debatable, but clearly we could see a major potential in the future.
This concept naturally expands to cover Know Your Customer (KYC) type identity checks for businesses. The days of face to face checks on documents to prove validity or requiring officials to sign paper copies as proof are clearly numbered. In today's world such archaic methods must be replaced with secure online validation.
We have come so far in such a short time but have not even scratched the surface of the possibilities that this technology offers and the potentially transformative effects it may have on various walks of life. It is quite possible that we'll look back at this blog in five or ten years' time, living in a blockchain driven world with applications and acceptance way beyond what I have even hinted at. We would no doubt be amazed at my lack of foresight.
Perhaps I should have polished my crystal ball a bit more before starting to type......

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