Bitcoin was trending over the past few weeks after surpassing the $1,000 threshold, hitting an all-time high, and later
plummeting 20 percent in just a few hours. While aware of its existence, many readers still don’t know what Bitcoin is exactly, how it works and what cryptocurrencies imply.
So, let’s take a look at cryptocurrencies going into 2017.
The Basics
There are numerous cryptocurrencies;
Bitcoin is just the most well known. However, all of them share a few characteristics, including their digital or virtual form,
the use of cryptography as a security method, the resulting anonymity of the transactions and their organic nature — which, in
theory, makes them immune to government interference.
In addition, all of the big, popular cryptocurrencies share one more characteristic: a limited monetary base with
pre-established increases that, over the long term, tend asymptotically to zero.
“What's interesting [about Bitcoin and other cryptocurrencies] is that you can use them to buy goods, like fiduciary currencies,
like the U.S. dollar or the euro; we use them because they have value,” Nicolás Sandller, blockchain programmer explained.
Going Mainstream
While cryptocurrencies are still questioned by the financial establishment, the technology behind most of them (blockchain,
or a decentralized ledger) is making its way to the mainstream. In fact, a couple of weeks ago, the Depository Trust and Clearing
Corporation, or D.T.C.C., a post-trade financial services firm providing clearing and settlement services to a large portion of
Wall Street, announced it would replace one of its central databases with new blockchain-based software.
As reported by the New York
Times, International Business Machines Corp. (NYSE: IBM) will be in charge of the reconversion project, and is expected to have it up and
running by early 2018.
The Real Value Of Bitcoin
To shed some light on such a complex issue, Benzinga reached out to cryptocurrencies developer Jorge Zaccaro, who explained the
state of the market going into 2017.
“The most important thing with Bitcoin is to avoid focusing on its price, because you’ve already seen what happened recently –
that it spiked and then tumbled. So, if you’re buying when it’s surging, and then, when it’s coming down, you lose a lot of money,
you stop believing in the technology,” he explicated.
Pretty much in accordance, Sandller said, “I think of Bitcoin as a public company— If you buy one Bitcoin, you are buying a
share of the technology, which in turn provides the value we’ll be talking about [below].”
“The real value of Bitcoin [and other cryptocurrencies] is not in its price relative to the U.S. dollar, but in the soundness of
the network, and that can’t be measured in the price alone, but also in the number of users, the number of companies, maybe in the
investment amounts in the space,” Zaccaro continued.
“In addition, sites report about something that is important, but, deep down, is just noise: all the banks, institutions and
companies that, over the past couple of years, have been experimenting with blockchain. However, in essence, this is not what is
happening,” Zaccaro went on.
For his part, Sandller believes that “the real value of Bitcoin as the mother-cryptocurrency, and all other cryptocurrencies —
with some alteration — is that, for the first time ever, we could use a technology to complete transactions of real riches between
two people that aren't in the same physical space, without the need for an intermediary or validity warrant.”
“If I transfer $1 to an account in China,
for instance, you have at least — I think — three intermediaries. And, those are trusted warrants, and that's why we pay them a
commission: for them to guarantee that I have funds, that my address exists and that the people in the middle are not going to
screw us,” he supplemented. “With Bitcoin you don't need that, there are no intermediaries. There is someone that verifies
transactions, but the incentive structure is set up so that he or she does not act as an intermediary, because he's agnostic or
blind to the transaction. He does not know who's involved.”
“That's amazing,” Sandller commented. “It's the first time in human history that we can do the same we could do with physical
bills, but in an electronic form. And, even in physical notes, there's a warrant— Bills have validation mechanisms, like metal
bands and whatnot. So, countries' central banks are acting as warrants, in a way, because they provide the technology for
transactions not to be manipulated. Bitcoin does the same (provide that technology) in an electronic form. So, for me, there's the
value— I can send money to China today, much faster than through a regular transaction, and without intermediaries— which means, at
a much lower cost.”
However, he added, “this applies only to small amounts of money. For larger amounts, there are still some intermediaries,
because you have to convert from fiduciary currencies to Bitcoin and vice versa, and those intermediaries are still expensive.”
Going Private
“Bitcoin is an open source technology, so you can download it and apply it to virtually any business you want,” Sandller
elucidated. “Like all open source technologies, it will have an adaptation period, which will be very long, and already being
manifest in small products that orbit around this technology.”
“The fact that the technology does not count on private support will make its development slower, but that's not a problem,
because the technology has been growing like crazy and being increasingly validated,” he added. “Last year the Bitcoin market did
great— I think it's worth about $15 billion now.”
“I think the effects of Bitcoin are already evident,” the programmer continued. “In the last eight years, banks and the
financial industry started asking a lot of questions because there was a strong competitor, Bitcoin, which was a lot cheaper,
faster, novel— So, I'm already seeing changes in financial systems around the world, just because they have such a strong
competitor.”
Down the alley of public versus private, Zaccaro went into the R3 CEV blockchain consortium, which has more than 70 of the top
financial firms in the world, including JPMorgan Chase & Co. (NYSE: JPM), Deutsche Bank AG (USA) (NYSE: DB), UBS Group AG (USA) (NYSE: UBS) and Barclays PLC (ADR) (NYSE: BCS), among its members.
“This R3 consortium that is getting banks together, and trying to keep others like Goldman Sachs Group Inc
(NYSE: GS) and Banco Santander, S.A. (ADR)
(NYSE: SAN) from bailing, is really trying to do something that
looks or sounds like blockchain, but without all the characteristics that are central to this system, like being open,
decentralized,” he noted.
“The only company I can think of now that has generated a good impression on me is Overstock.com, Inc. (NASDAQ:
OSTK), because the CEO is directly involved in the subject,
believes in it, and is not seeking to create a different blockchain or anything like the aforementioned consortiums are doing,” the
developer disclosed. “He understands that what matters is that, when something is registered (in this case, the exchange of a
stock), there is no computational power in the whole planet that can modify that operation. And, this is something that none of the
private blockchains (or distributed ledgers, or however they want to call them) can assure, because they take the network’s
fundamental aspect, which is proof-of-work.”
“If a blockchain, no matter how nice it sounds, does not have the ability to guarantee that transactions cannot be altered or
tampered with, it cannot be called a blockchain,” he voiced.
Check back tomorrow for part two of this article, where we look into the future of cryptocurrencies and digital
currencies.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.