HomeTech and GadgetsComputersManaging the Future - Part 3: Cryptocurrencies and the Blockchain

Managing the Future – Part 3: Cryptocurrencies and the Blockchain

March 23, 2019 – Cryptocurrencies like Bitcoin have risen phoenix-like and plummeted to fiery depths since first being introduced to the world just a few years ago. Underlying Bitcoin was the blockchain, a general distributed ledger that organizations all over the planet these days seem to be toying with to develop practical uses for it. At the same time both the digital currencies created to be traded on the blockchain remain a challenge. When I have been asked about Bitcoin or Ethereum, I describe them as investments you can afford to lose.

Governments and businesses have struggled in coming to grips with cryptocurrencies, initial coin offerings (ICOs) as a way to raise funding, and using the blockchain technology within supply chains. But if we are to see blockchain ledgers become ubiquitous then the technology has to solve a number of its limitations.

On the Global Legal Insights website, it states that “blockchain and cryptocurrencies have taken the world by storm.” I believe this is meant to suggest a positive outcome. But I see “storm” and that to me is troubling.

Being a distributed ledger makes blockchain difficult to regulate. And don’t even start talking about cryptocurrencies like Bitcoin which have risen and fallen like the tide, and in some cases have seen fortunes won and lost in a matter of hours and days. Describing these digital currencies as the “Wild West” of financial instruments seems apt.

One concern is the laundering of real currencies through cryptocurrencies. Since transactions in Bitcoin or other digital currencies don’t go through organizations like banks and financial institutions, but rather get recorded and moved about using blockchain, the technology provides an attractive medium for financing criminal or terrorist activity.

With no central authority to police the currencies traded on it, and the ledger owing nothing to any legal jurisdiction it is no wonder that a number of countries today have banned both technologies. But Bitcoin has also inspired countries to consider using the underlying blockchain for a range of new purposes from managing taxation to voting. And some countries have begun to issue a national digital currency for a variety of purposes.

Canada enacted the first law to treat digital currencies as money service businesses to regulate the use of the blockchain technology in transacting Bitcoin and other digital currencies. The country’s mint even dabbled with the idea of issuing the MintChip, a national cryptocurrency. But for what purpose? At the time of its introduction, it was to be used by a limited number of merchants and storefronts in Toronto along with an e-wallet. The MintChip, however, was given dollar equivalency so that those making purchases could turn their digital coin into Canadian money. The experiment had limited success and by the end of December of last year the MintChip was declared dead, gone the way a number of other digital currencies.

And then there is the story of QuadrigaCX, a cryptocurrency exchange whose founder died while vacationing in India, and going to the grave were the passwords and encryption routines needed to access the 190 million USD equivalent dollars tied up in the company’s blockchain ledger records. To date, the money remains inaccessible for the many who invested their real cash in QuadrigaCX digital currencies.

Separating the blockchain from digital currencies may yet give us an exciting new technology that could serve to streamline and improve processes in many industries. Private blockchains are starting to be used by banks and financial institutions. Governments are considering using them to improve delivery of services to the public. Identity systems using blockchain could give users a secure online healthcare record. Lawyers are looking to blockchain for the issuance and management of contracts, and eliminating legacy document processes. Realtors are considering using blockchain for managing property transactions. Musicians, writers, and artists are considering it for ensuring ownership and provenance. And finally, for managing supply chains for manufacturers, distributors, and service providers, blockchain is seen as a tool that can replace proprietary databases.

At a conference this month in Thailand, attendees from around the world discussed blockchain, digital currencies and their transformative capabilities. Separating the coin from the ledger is where the future lies I think. Governments need to ensure incidents like QuadrigaCX don’t reoccur. And there has to be a way for a central authority to override the encryption that made digital currency transactions so attractive to the darker side of human nature. Existing laws such as those enacted in Canada and the European Union have to tackle the money laundering and tax avoidance that digital currencies and a distributed ledger owned and operated by no central authority can encourage.

In July of 2018, Malta passed legislation establishing a regulatory environment for blockchain, any other distributed-ledger technology, and any digital currencies using the technology for transactions. The new laws established a Digital Innovation Authority to certify distributed ledger platforms providing legal certainty to users, the setting up of exchanges and companies dealing with digital currencies, and a regulatory regime for all types of cryptocurrencies and other units being transacted over distributed ledgers.

Now if blockchain can solve the two nagging problems that remain – lower than acceptable feeds and speeds when compared to dedicated proprietary systems (you can’t do tens of thousands of transactions per second), and that because transactions are distributed across the network tying up lots of systems and the energy needed to run them every time, it may yet become a mainstay in our future rather than a passing fancy.

 

 

lenrosen4
lenrosen4https://www.21stcentech.com
Len Rosen lives in Oakville, Ontario, Canada. He is a former management consultant who worked with high-tech and telecommunications companies. In retirement, he has returned to a childhood passion to explore advances in science and technology. More...

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