Cryptocurrency innovations

Nathan (0:00)

With Bitcoin and other cryptocurrency markets recently attracting unprecedented amounts of attention, many are left wondering what the popularity of this new technology means. Digital currencies have the potential to disrupt financial systems across the globe through new business opportunities, technological applications, and by fully distributing control over money. However, while some consider cryptocurrency a much needed innovation, others see it as nothing more than a bubble ready to burst. My name is Nathan, and welcome to CaspianReport. If you'd like to help us produce more content like this, please visit our fundraising page at patreon.com/caspianreport.

The mysterious inventor of Bitcoin, known only under the pseudonym Satoshi Nakamoto, described Bitcoin in its initial 2008 announcement as a new electronic cash system using a completely decentralized peer-to-peer payment network. Traditionally, in order to verify monetary transactions and prevent double spending, a trusted central authority, which can keep track of account information like banks or PayPal, was needed as a middleman. Bitcoin circumvented this by spreading the transaction and balanced data across an entire network, with each node in that network containing a complete history of all transactions using the currency. This way, instead of relying on a single central authority, the network itself verifies transactions by having all nodes come to a consensus on who owns what. If one node in the network contains a transaction that contradicts the rest, it is rejected by its peers and deemed invalid. This strategy for tracking and verifying transactions is called the blockchain, and is what Bitcoin and numerous other cryptocurrencies are built on. In order to prevent multiple contradicting transactions from being confirmed at the same time on different nodes, Bitcoin requires a certain amount of computing power before blocks of transactions are permanently written into the currency's history. This process consists of generating a cryptographic hash of a block's transactions that must meet certain predefined criteria and is known as mining. In order to encourage miners to dedicate computing power to accomplish this work, those who successfully verify blocks of transactions are able to mint new coins for themselves, thereby allowing the entire network to be self-sufficient. Cryptocurrencies have entered the world at a point where faith in traditional banking and monetary systems are wearing thin. The financial crisis of 2008 led to heavy market manipulation and capital controls by central banks, such as the extensive and controversial use of quantitative easing in the US, UK, and Japan. Simply put, central banks electronically print huge sums of money and use the newly created funds to purchase assets from other struggling banks. Large injections of cash into the economy, like those of quantitative easing, can easily lead to a sharp devaluation of a country's currency. Central banks can also raise or lower interest rates at will, which make it harder or easier to borrow cash at any given moment. Regardless of how effective these actions are at stabilizing or improving the economy, they raise concerns over the vast power that central banks have over their respective nation's currencies. Bitcoin and other cryptocurrencies have gained traction partially as a backlash to the power of central banks. The decentralized nature of cryptos means that no single authority has the power to directly influence their value and is appealing to those who are most skeptical towards governments and central banks. This is compounded by the fact that since abandoning the gold standard in 1971, the value of the US dollar depends entirely on faith in the economy and the institutions that uphold it. Of course, given all this, the US dollar is still the dominant reserve currency of the world, which reflects a strong international faith in the US Federal Reserve and for the United States economy as a whole. Nonetheless, the rapid rise in popularity of cryptocurrencies have definitely signaled a desire for completely new monetary systems, and governments and international corporations are beginning to take notice.

Japan has emerged as a strong early adopter of cryptocurrencies. In March of 2017, a consortium of 47 Japanese banks announced that they were utilizing a cloud-based payment platform powered by the Ripple cryptocurrency in order to achieve cheaper and more efficient transactions. The shift to Ripple is estimated to bring transaction costs down by up to 60%, and the technology is expected to be adopted by 40% of all Japanese banks by the end of the year. Around the same time, the Japanese government also enacted legislation aimed at regulating cryptocurrency markets and formally recognizing them as legal payment methods, the first of its kind by a central government. In February of 2017, an organization called the Enterprise Ethereum Alliance was launched in an effort to develop blockchain-based enterprise software on the Ethereum blockchain. The EEA is backed by many big-name multinational corporations such as Accenture, Credit Suisse, Deloitte, Samsung, and Microsoft, and is a great example of how blockchain technology is getting serious investment for commercial use.