Bitcoin, blockchain and cryptocurrencies: What’s all the fuss about? Part One

Bitcoin, blockchain and cryptocurrencies have been around for a while now, but having once been dismissed, they are starting to be taken seriously in interesting quarters. We take a look at the concept and the implications for the future as well as where all the current buzz is coming from and what it’s all about.

[easy-tweet tweet=”Is #bitcoin a #currency, a commodity, or a hybrid of both asks @billmew”]

Bitcoin itself was created back in 2009 by a developer or group of developers going by the pseudonym Satoshi Nakamoto. As a decentralised virtual currency or cryptocurrency, bitcoins are exchanged digitally and managed by a peer-to-peer network, rather than a central bank or authority. There is debate as to whether or not bitcoin should be considered a currency, a commodity, or a hybrid of both.

Each bitcoin is a piece of code that has its own transaction log with timestamps. The coins are created by mining servers, with a total limit of 21 million bitcoins. They are stored in an owner’s virtual wallet and can be transferred and exchanged for goods and services. Transactions are public and although they are relatively anonymous, it is possible to trace identities back to real-life individuals.

Not only is the value of bitcoins exceedingly volatile, but the cryptocurrency currently falls under no regulation or legislation

Association with risks and crime

Not only is the value of bitcoins exceedingly volatile, but the cryptocurrency currently falls under no regulation or legislation. There have been incidents of online bitcoin wallets being compromised by hackers leading to theft of Bitcoins. And while bitcoins have also been tarnished by their association with crime, there is a growing recognition that the concept of cryptocurrencies and the underlying technology blockchain could well have a role to play in the future of payments.

So what’s the buzz?

A big data analysis of the top opinions and influencers on the topic demonstrates the issues at hand here. Compare the Cloud’s global top 10 #CloudInfluence ranking for Bitcoin, Blockchain and Cryptocurrencies provides a snapshot in time.

[table id=61 /]

Top of the list is Allen Stefanek, president and CEO of the Hollywood Presbyterian Medical Centre in the United States which was “was crippled” when hackers were alleged to have held their data for ransom and demanded 9,000 bitcoins – worth roughly US$3.4 million. While Stefanek later revealed that the attackers were actually demanding only 40 bitcoins or approximately $17,000, it was a high profile example of the way that bitcoins have become the favoured currency for cyber-criminals.

People probably have less sympathy for Martin Shkreli (8th in the ranking) who rose to notoriety as a price-hiking pharmaceutical boss. He wanted buy out the new Kanye West album “The Life Of Pablo” and even paid the bitcoin equivalent of $15 million, so he could later resell the record to Kanye’s fans. Unfortunately it was a scam and he has been seeking to recover the funds ever since.

Such incidents have lead to many merchants distancing themselves from cryptocurrency. It was even claimed recently that Microsoft (4th in the ranking) would no longer be accepting bitcoin at its Windows Store, a little more than a year after announcing it would support the digital currency. However Microsoft later confirmed that the message on its website had been posted by mistake, and that it would in fact continue to accept bitcoin.

Then one of the lead bitcoin developers, Mike Hearn (in 2nd), said that he was ending his involvement with the cryptocurrency and selling all of his remaining holdings because it had “failed”.

Bitcoin is gaining notoriety as much for its novelty as for the volatility of its valuation

So, it’s just a failed enterprise used by criminals then? No, there’s more to it.

Bitcoin may well have been tarnished by associations with dubious such use cases – many of them criminal in nature – while also gaining notoriety as much for its novelty as for the volatility of its valuation. However there is increasing interest in underlying blockchain technology and in the real potential of this and of cryptocurrencies.

Business, trade and currencies are built on trust, but the current procedural, organisational, and technological infrastructure required to create institutionalised trust is expensive, time-consuming, and, in many cases, inefficient. Bitcoin may be tarnished and unregulated, but the underlying blockchain technology could provide a disruptive model to transform the way that we currently handle transactions, contracts, and indeed trust.

[easy-tweet tweet=”#Blockchain technology could provide a disruptive model to transform the way that we handle transactions” hashtags=”bitcoin”]

In Part Two we look at why organisations are suddenly looking at new blockchain-based cryptocurrencies.

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