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The Hype Around Blockchain and Cryptocurrency in a Nutshell

Ever since the implementation of the blockchain as the underlying technology for the bitcoin, people have been very creative with the applications of the blockchain technology. If you did not already know, the bitcoin is a digital currency and a peer-to-peer electronic payment system that is not issued by any central authority. A blockchain is a decentralised digital ledger that records transactions across many computers in such a way that the registered transactions cannot be altered retroactively. The use of blockchain can thus facilitate secure online transactions, prevent corruption and minimise malicious manipulation of the system. Some of the most discussed applications of blockchain include smart contracts, facilitation of the efficiency of supply chain and banks settlement service, etc.

Blockchain technology is said to be a huge threat to the financial intermediary such as the commercial and investment banks since it allows the execution of transactions and contracts without the middleman. Bankers are aware of the challenges and they are hoping to turn threats into opportunities, which explains why blockchain is such a popular topic in the financial industry at the moment. In fact, around 80% of the financial institutions around the globe have already taken part in developing solutions to incorporate blockchain or other financial technology into their IT systems.

For example, a wide range of interested parties has announced to form a global alliance in February 2017, named the Enterprise Ethereum Alliance (EEA). The EEA involved thirty Fortune 500 companies ranged from investment banks, technology companies, consulting and technology service firm to several Fintech startups. The primary goal of this corporations is to develop Ethereum into an enterprise grade blockchain that makes it easier for enterprises to achieve higher yield by improving the efficiency on the speed and the volume of transactions, and comply with the regulations at the same time. Besides, the alliances are going to test on new governmental models that are able to decentralise power but still create corresponding accountabilities for the agents that are involved the management structure. This is one type of application of the smart contract. If the plan turn out to be successful, that will have major effects surely not limited to technological and financial industries.

Another important application of the blockchain is that it is the underlying distributed ledger technology of some cryptocurrencies such as Bitcoin and Ether (the virtual currency transacted through Ethereum platform). Bitcoin currently has more than 19 billion US dollars market capitalisations and is the highest among all existing cryptocurrencies. The value determination of bitcoin is purely driven by supply and demand; therefore, with a limited amount of bitcoin in circulation, the price of bitcoin is very volatile. Bitcoin has already been used in various real-life situations, from exchanging currency though bitcoin to exploit profits from its extreme volatility. On top of that, there has been a longstanding discussion on the idea of creating bitcoin ETFs. The first filing of bitcoin ETF, Winklevoss bitcoin trust, was disapproved by SEC in early March 2017 due to the fact that the bitcoin market is easy to manipulate, and thus make it an unstable and inefficient market. And most importantly, the bitcoin is just a digital currency that is still fairly unregulated and the underlying value is impossible to determine. With the regulatory risks and the complexity of trading bitcoins like other securities, it is rather unlikely that bitcoin will become a standard international currency in the near future.


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