The 'blockchain' technology, the very basis on which the bitcoins were
created, is likely to become the backbone of the future digitization of
money. The importance of the technology was asserted in the 16th Annual
International Conference on Policy Challenges for the Financial Sector; a
three-day convention which was held on June 1st through June 3rd in
Washington, D.C.
The conference was held under the tutelage of the FED, the World Bank, and
the International Monetary Fund.
It was attended by representatives of the major Central Banks, across the
world. The subject for this year was 'fintech' and the first day was
dedicated to studying the 'blockchain' technology which is the framework on
which the popular digital currency bitcoin has been built.
FED Chairwoman Janet Yellen was the introductory speaker and she said
that, "central bankers don't normally like the word "disruption,
but it's not something to fear.
Technology has played a role in solving problems in the financial
system in the past, and she encouraged her fellow bankers to learn everything
they can about this new technology", reports the Wall
Street Journal, from comments relayed by Perianne Boring, the president
of the Chamber of Digital Commerce.
"This truly shows the technology has reached the highest levels of
society and government," Ms. Boring said.
What is 'blockchain'?
Simply put, a blockchain
is a digital ledger of transactions that have been executed. New data
continues to be added in a linear, chronological order through the completed
blocks of data which are shared among the computers on the network.
Participants on the network use cryptography to edit the ledger online
without the involvement of a central clearing authority. This ledger contains
all the data of
transactions from the start of the first block to the latest block.
Advantages of the 'blockchain':
As there is no necessity of a centralized authority to oversee the
transactions, it creates a transparent, simple and fast transaction
environment. As the data is available to all of the members, and any
modification requires the permission of the majority of the members, it is
better equipped to handle the onslaught of cybercrimes.
As no one can bypass the rules, the members can be assured that no single
authority can deviate from the protocols. Due to direct transactions between
two parties, transaction costs will be negligible.
The interbank transactions, which currently take days, can now be cleared
in a matter of minutes, 24/7 and without the restrictions on working hours.
"Soon, the phrase 'cross-border payment' will make about as much
sense as 'cross-border email'," said Mr. Adam Ludwin, co-founder and
Chief Executive of the 'blockchain'-focused startup Chain, during his keynote
address.
Changes are needed to adapt it for the financial system:
The technology which is used in 'bitcoins' is unsuitable to be used
directly in the various types of transactions like commercial papers,
corporate bonds, U.S. Treasuries, etc., as these are issued for various
business or policy purposes but there is already a new digital currency
working with many of the top banks already which I mention later in this
article.
Hence, a new more advanced and complicated system needs to be generated on
the same 'blockchain' principle which can duplicate the ease of the use of
current assets in a newly digitized model.
Challenges to adapting to 'blockchain' within the existing financial system:
It is unlikely that any government will be willing to part with their
powers of which they control most of the monetary and fiscal decisions either
directly or indirectly. Although the technology has enough security measures
that are in place, the theft that occurred at Mt. Gox, which handled
around 70% of all 'bitcoin' transactions, until 2013, reveals its'
vulnerability.
The 'bitcoin' is a small asset class with only a small quantity of
bitcoins in circulation as compared to the trillions of transactions that
take place daily, around the world. The computing power needed to handle such
vast transactions is humongous. Such a setup requires billions of dollars, in
investments, which may not be feasible to many.
Nonetheless, there are a number of entrepreneurs like Todd
McDonald, co-founder and Head of Strategy at R3CEV LLC, a consortium of
more than 40 financial institutions that are working towards the application
of distributed ledger technologies to global financial markets.
"We can monitor compliance in real-time. We can answer questions
about collateral ownership and hypothecation that were at root in the run on
the system in 2007," said Mr. Ludwin.
ARTICLE: The institutional investors are recognizing this
outcome, hence, they are the largest group of Bitcoin buyers.
Conclusion:
The days of cash are numbered and will soon be a mere memory! The
revolution in 'blockchain' technology has reached the doors of the FED and it
is now only a matter of time before the 'greenback' is phased out by the
general public.
The reason I have started to cover bitcoin and digital currencies (Alt
Coins) is because I believe they will become main stream much sooner than you
think. In fact, there are already hundreds of new digital currencies
available, though many are not and will not become key currencies.
I am watching, tracking and analysing many different digital currencies
based on different metrics: how many online communities are focused on
various alt coins, which ones have the most search engine searches, growth in
market cap, have strong price charts, and which ones are focusing on working
with large banks like the one call Ripple.
This new asset class is definitely disruptive, but I believe digital
currencies add diversification not found anywhere else in the financial
markets. They are a speculative play, safe
haven during next financial crisis, and allows many people around the
world to transfer money without being tracked and to possibly avoid taxes for
those who want to side step government. Either way, more people and companies
are accepting digital currencies and the demand and value they offer will
eventually be priced into each each currency.
I have learning and slowly identifying some exciting opportunities in this
new asset class which I feel everyone should some exposure to in their
portfolios. Soon I will unveil some of my top currencies and where to buy and
store them – Stay Tuned!
