Bitcoins and Blockchains: Promises and Perils
When last we touched on bitcoin in 2014, the digital currency was trading at £342.22 a bitcoin. Three years on, that figure’s soared to £3,473.56 – a more than tenfold increase. While likely to slump in the immediate future, since investors currently seem to be suffering from excess optimism, whatever price it settles on will be significantly up on 2014. That means greater demand – new users interested in buying it, longstanding owners prepared to pay more for it, or both.
To answer why, we’ll look at what bitcoin is, its recent upgrade and prospects. Blockchains, the innovation on which bitcoin depends, is part of the story into which we’ll go with greater depth. But each, digital currency (bitcoin) and a way to preserve information indefinitely (blockchains), have massive, positive implications for ERP software and eCommerce. In our sector, it could pay handsomely to get ahead of the curve and understand their potential.
So, what is bitcoin?
It’s easiest explained as to currency what email is to post. Email was a big step forward on post, faster and more secure, which can be said of bitcoin over currency. And like email, where users retain their private password and send messages to a public email address, so with bitcoin users possess a cryptographic private key that enables them to send currency to a public address – a 26-35 character chain, starting with a ‘1’ or ‘3’, resembling this: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2.
That feels innocuous, but consider the alternatives, available from the traditional banking system, and the coding that makes it possible. Opening a bank account isn’t straightforward for many on the planet, nor are banking functions, such as transferring money across different countries (remittances) and depositing cash or cheques that require trips to physical bank branches. Bitcoin opens these up to anyone with an internet connection.
That means, in the eCommerce world, bitcoin is allowing access to fresh new markets in the developing world with virtually seamless currency exchange to boot. Someone could buy a yo-yo with Nigeria Naira that could be converted to bitcoin, wired to a recipient in the UK and converted back into pounds. No need for an intermediary.
Regarding coding, various ecash systems had been tried before, but all fell short because of the double-spending problem, that is, the inability to verify that a token had been spent or transferred, meaning a token could be spent over and over, destroying trust in the system.
Bitcoin got around this with the advent of blockchains. Every so often, a group of recorded bitcoin transactions is combined into a unique block, which is tied to every other before it in a chain – hence blockchain – and shared across the whole network. The result is a public record of all transactions that is virtually impossible to change – a source of information that can be trusted almost completely. Bitcoins can’t be spent twice since everyone knows they were spent before.
Currency – bitcoin – may have been the first and most logical outgrowth of blockchain technology, but it’s by no means the only application. Anything that relies on verification, or is affected by fraud, is open to improvement. Without reliance on central bodies, like governments or universities, a person’s identity could be encoded on a blockchain, meaning the end of birth, marriage and death certificates, passports and ID cards, GCSE certificates and university exam transcripts. Even cloud storage will be revolutionised, decentralised so files are stored peer-to-peer forever. Storj and InterPlanetary File System are examples.
For eCommerce, here are just a few blockchain-powered innovations:
- Better tracking: GPS coordinates could be saved on blockchains, meaning more accurate and trustworthy tracking information.
- Smart contracts: fed up with chasing late delivery or payment? Smart contracts can be written to blockchains so money held in reserve (escrow) is released only when conditions agreed in advance are met.
- Intelligent supply chains: everything involved in a product’s manufacture, right back to raw materials used, can be stored on blockchains, making it easier to pinpoint blame when an item’s late or defective. Or improve efficiency.
- Permanent, trusted records: once saved in and distributed over a blockchain, company records, from customer interactions to an order’s passage through our Sales Invoice Manager, would become unalterable and permanent. And because no-one can change them, trusted. That’s a real advantage for your company’s accounts department or figuring out what went wrong with a customer’s order.
There are many more!
This gives a better idea of what’s behind bitcoin’s recent price surge, but is only part of the enthusiasm. Some regard bitcoin as a store of value, so have invested as a way of protecting their wealth in these times of Trump and potential war with North Korea, but others are optimistic about the recent bitcoin upgrade – that it’s secured the currency’s future for a good while to come.
So, how has the upgrade improved bitcoin? It’s related to transaction size. Previously, each block in bitcoin’s blockchain – where transaction data is stored – was limited to a megabyte, which meant the network faced a ceiling of seven transactions per second (tps). That’s pretty slow – PayPal can handle roughly 115tps and VISA about 4,000. Bitcoin had to evolve or die, but that meant most bitcoin miners – those whose computation supports the network – agreeing to change. This paved the way for years of debate, resolved only recently in favour of ‘SegWit’, that altered what and how much information each block stores. Now up to two megabytes large, transaction speed has doubled with longstanding bugs removed. Bitcoin’s future is that much brighter.
But that doesn’t mean there won’t be bumps along the way. As mentioned when we kicked off this article, bitcoin is probably overdue a price correction in the near term and there’s always the risk it’s eclipsed by another, more superior cryptocurrency that’s faster and more secure, or that bitcoin has some fatal error or bug as yet unknown that would make it worthless. Blockchain technology, as the basis of bitcoin, has its own merits, but still faces a long slog, perhaps up to a decade, until it reaches widespread adoption. Until then, making the most of its benefits means turning to small, third-party start-ups, or going alone to develop applications. Both mean plenty of bugs and little support.
Before you start innovating with bitcoin or blockchains, build a stronger business with Khaos Control. It’s tried and tested, and has boosted business growth for countless companies since 2000, many of whom have stuck by us since those early days through times good and bad. That’s a solid endorsement – of our staff and our software – and we look forward to starting a great partnership with you.