Blockchain & CryptoCurrencies
What does it do?
The blockchain is what has come to be referred to as a distributed ledger technology, which allows a sharing of digital data that has been replicated and validated around the globe. Simply put, the blockchain is a technology that is a database that has no central authority of ownership, being a completely decentralised platform where algorithms are calculated and validated by either single or multiple processor units, to ensure a record has not been changed or hacked and is authentically unique. It is viewed as a digital ledger for transactions carried out by many cryptocurrencies, which are a form of digital currency used in place of traditional forms of currency. Cryptocurrencies are generally viewed as a highly speculative, high risk investment and has had the stigma associated with online black markets and criminal organisations since Bitcoin’s inception, which its initial release was early 2009.
As time progresses, more transactions are carried out on the blockchain, requiring more complex algorithms to be computed by a network of systems, creating what is called a hash to ensure the data being input into the blockchain isn’t fraudulent - however this process is more casually known as mining. Mining cryptocurrencies require computing power that would traditionally be provided by individual users, but as the processing requirements become more complicated to validate the transactions to the blockchain, the work has become partitioned to numerous contributors, where adding one transaction to the blockchain would reward the operator with hypothetically 25 Bitcoins back in 2009, those 25 would therefore be divided upon more users that contribute to adding that transaction to the blockchain if it were done today, this is partly due to the nature of how many Bitcoin’s are in circulation, the power required to validate the transaction and how many miners there are.
Where blockchain and cryptocurrencies go in the future is anyone’s guess, as the scalability in projects that are available to consumers have exploded due to the increased interest of the technology – and this is partly due to the financial reward and not what the technology offers. There are paired utilities that when Bitcoin came into being wasn’t realised even recently in 2017 when non-fungible tokens, also known as NFTs, arrived onto the scene. The first prominent NFT project that came to life were the CryptoPunks on the Ethereum blockchain. It was designed to celebrate the punk rock lifestyle, as a collection of ten thousand images that shared a similar design style but they were all unique and can be easily described as a digital collectible, and in sense is where evidence of physical assets can be stored, such as a certificate of title of a property or something as basic as a receipt for buying a cup of coffee. It’s been hypothesised that there will be a time where the traditional stock market will be succeeded by a blockchain stock market, where the authentication of transactions with buying, selling would negate the need of having a central authority brokering buy and sell orders, as was seen when Robinhood, a centalised brokerage platform, stopped buy and sell orders of the shares for GameStop early last year, prompting an outcry and embarrassing public ridicule of Wall St.
The way blockchain, cryptocurrencies and NFTs are processed today may be different in a decade’s time. As the way we generally view computers would be referred to as classic computing, where a task is carried out in what we perceive as a reasonable timeframe on the most current and up to date graphics card, quantum computing may make those tasks complete where no time has passed or negate the need for such tasks to be done in the first place. The beautiful thing about this technology is that its intended use is to provide a truly autonomous, decentralised form of doing business, where there are no outside interference that have ulterior financial motives and the way that is ought to be achieved can’t be determined based on the way technology evolves at any pace.
What is the likely impact?
Just like digital disruption began with the dot com boom, with small businesses dying out because they didn’t have a website, the same could be said for businesses that don’t adopt to the blockchain. As more and more adoption occurs, there will be more people looking to spend their cryptocurrency and the benefit of blockchain technology provides impeccable record keeping (Brown, 2022). It can be argued that cryptocurrencies and blockchain will affect any person that deals with buying and selling and that doesn’t leave anyone out globally.
If goods and services were priced on the current denomination of 1 Bitcoin = $53,176 AUD whereas one month ago it was priced at $51,829, I would have more buying power than I would 30 days ago. Does this take into account current issues faced with the global economy, such as inflation and the flow on effects of the international and national supply chain, would those be priced in the price of the Bitcoin I would spend at Coles? Or would it be how we treat traditional currency conversion alas from AUD to USD, where the buying power differs in low amounts of cents but add up as the value goes higher. These are still questions being asked, even where it comes to the SEC in the United States have an infamous court case against Ripple and to determine whether their cryptocurrency platform is classed a security. Hypothetically, if the world economy was dominated by a single cryptocurrency, such as Bitcoin, a truly decentralised trading economy would be of benefit to society as issues such as inflation could be a thing of the past (Huang, 2020). Its disruption will cause the traditional banking sector to change as adoption grows.
As mining cryptocurrencies increase, the resources required for providing state of the art infrastructure will affect other indsutries, as we have seen with the semiconductor shortage, also in part due to the covid 19 pandemic, where computer parts have been produced more in frequency and taken more of those resources, away from industries such as automotive with the production of contemporary vehicles, the gaming industry with PS5, Xbox series S/X.
Depending on the use Ethereum gas fees, bitcoin gas fees, transactions taking long and sometimes fail. For Ethereum there are layer 2 solutions such as Polygon Matic and technology such as Loopring that park the transaction, in a sense what can be determined as a zero knowledge blockchain authentication allowing the transactions on the Ethereum network not to cost hundreds of dollars but a fraction and not require the power consumption that would normally be needed.
How will this affect you?
The way blockchain and cryptocurrencies would affect my everyday life is not just how I would transact for goods and services, but it would affect my friends, family and essentially anyone that deals with money – everyone! If Bitcoin prices were stable or if the price fluctuated in a matter of my net worth diminishing 50% over a matter of days given the volatility of cryptocurrency – where does that put me as a consumer, an investor and as a business operator? Given the way transaction fees fluctuate when the network is busy validating transactions, would I buy paying $100 gas fees on a $5 cup of coffee at the local bakery?
If the existing supply issues continue in regards to the shortage of semiconductor chips, this would affect my circumstance in upgrading necessary goods when the time comes. Such an example being if I needed to replace or update my car, given the shortage on new vehicles in the automotive supply chain would I have to wait up to 12 months for stock to become available, or would I need to dig deeper into my pockets and buy a pre-owned vehicle where resale has increased significantly, resulting in parting with more money than I would like to.
I still feel the cryptocurrency is in its infancy but that change relatively quickly once the adoption grows, gas fees are resolved with zero knowledge parking and the supply chain efficiency returns to pre-pandemic levels.
