The Promise of Blockchain

In this final article of our 'What is Bitcoin' series we talk about the real exciting idea: blockchain. Beyond the short-term buzz around gains and trading activity, the crypto ecosystem has some truly newsworthy stories that get drowned in the hype. So we'll do our best to peak your curiosity here and get you to wonder.

What is NEXT for BLOCKCHAIN?

The implications of blockchain-based applications are considerable. For example, blockchain-based real estate transactions would enable buyers and sellers, two entities who don’t necessarily trust one another, to negotiate price, set conditions and complete a sale without a third party. By the same token, the blockchain could arguably take the place of many banking and financial services.

“The blockchain is a trustless system,” says Louis Roy, a chartered professional accountant and blockchain leader at Catallaxy, the blockchain consulting arm of Raymond Chabot Grant Thornton.

“It allows you to do business with someone who you don’t completely trust.”

Blockchain is also uniquely suited to logistics. In the case of Maersk, which launched a blockchain-based shipping platform in collaboration with IBM earlier this year, it has allowed the Danish shipping giant to track various shipping “events”—departure, customs information, bills of lading—in real time, without relying on antiquated computer systems or paper-based legal documents that currently dominate the industry.

Blockchain technology also presents economic problems that are, at least in part, novel.

One example is the so-called “blockchain trilemma” recently articulated by Abadi and Brunnermeier (2018). They show that, in the case of a general blockchain, an ideal ledger should be (i) correct, (ii) decentralized and (iii) cost efficient. They then lay out an argument and a model suggesting that no ledger can simultaneously meet all three criteria. This trilemma comes from the incentives for potential forking and verification of the blockchain.

Potential efficiencies and the need to update legacy systems are two of the reasons many organizations, including the Bank of Canada with project Jasper, are conducting experiments using blockchain technology. According to an International Data Corporation report published in July, worldwide spending on blockchain solutions will rise to US$11.7 billion in 2022 from the US$946 million spent in 2017.

The bottom line is that crypto-assets and the underlying blockchain technology may allow for some efficiency gains, at least under certain circumstances (e.g., by eliminating third-party verification). That said, this may come at the expense of reduced efficiency from the consensus mechanism. Moreover, and rather ironically, the need for trust in a third party and intermediaries has not been eliminated as envisioned by some proponents; it has only been shifted.

Blockchain applications are very much in their infancy.

Yet as the number of Bitcoins diminish and become more difficult (and expensive) to mine, companies relying on myriad Bitcoin mining machines pulling money out of the ether won’t likely last long. For Pierre-Luc Quimper, the future of Bitfarms lies not in Bitcoin but the infrastructure supporting it.

Currently, Bitfarms mines Bitcoins. Yet Quimper wants to transition the company to something bigger, in part due to the difficulty and volatility of Bitcoin mining. It will instead use the blockchain technology behind the cryptocurrency as a secure, virtually un-hackable and fully traceable framework on which companies can set up their logistics and inventory systems. According to Quimper, Bitfarms can both design and host these systems in the future using its existing infrastructure. He says Bitfarms’ transition from Bitcoin miner to blockchain host will mean more jobs and less susceptibility to Bitcoin’s rodeo-like swings in value.

“We are at the beginning of something huge,” he says. “We want to be a vertically integrated company that finances its future by mining Bitcoin. Blockchain applications are cheaper, more secure and more adaptable than anything that exists now. Bitfarms will be integral in blockchain solutions. We don’t want to just consume electricity.”

Fast-forward to today and blockchain applications are trading non-fungible tokens (NFT for short) worth millions of dollars at one of the world's oldest auctions, senators and congressman are pressing the US Federal Reserve to take a position on central bank digital currencies, it is indeed the start of something huge.

#blockchain #defi #decentralizefinance #decentralized #bitcoin #crypto #ethereum #NFT #nonfungible #digitaleconomy