Bernard Marr recently posted on changes to Bitcoin and blockchain technologies and the business impacts from these changes.
Blockchain was one of the technologies which I predicted back in January to break through in 2017.
The distributed, consensus-dependent ledger technology is really just a new form of database – but due to its trustless and encrypted nature, one which could potentially revolutionize many aspects of finance and business.
Virtual currency Bitcoin is undoubtedly the most visible implementation of the technology right now – its rapid growth in value has made it attractive to speculative investors but businesses are increasingly accepting it for goods and services.
Excerpted from Benard Marr @ Bitcoin and blockchain splits
Bitcoin technology is being adopted in many applications. It seems that Bitcoin is too popular with potentially long delays in processing transactions. Calculating the required hashes is a challenge as the number of users and transactions has increased. Two competing strategies arose to address the problem. One strategy proposed a major code change which would store more data per block and increase server demand. The second proposed shifting some of the transactions outside the blockchain. The compromise choice Segwit Technology incorporated a little of both: increasing the block size and moving some processing outside the main network. One group of users, unhappy with the compromise choice, chose to increase the block size instantly creating a new crypto currency: Bitcoin Cash. As if there were not enough crypto-currencies.
Bitcoin with its promise of decentralized transaction processing has drawbacks.
- Too many people are chasing too little Bitcoin creating inflationary pressures.
- The value of Bitcoin varies from day to day. Bitcoin is vehicle for investing not, at the present, stable enough to serve as a currency.
- Hoarders collect Bitcoin hoping for the value to increase decreasing the amount of Bitcoin available creating inflationary pressure.
- Processing, mining, requires special technology and cheap electricity. Decentralization is hampered giving rise to an oligarchy of miners. Technology, electricity and a whole supporting infrastructure create costs. Covering those costs demands revenue which necessitates transaction fees to raise the required funds.
- Bitcoin, IMO, will never be a successful as a currency as long as miners can make profits by mining. Bitcoin has an intrinsic value by monetizing transaction costs. Paper currency has no intrinsic value and there are no profits to be made in paper money transactions. More accurately, governments do not need to incur costs from transactions based on paper money. The costs of paper money transactions are borne as a collective overhead on society and the government.
The goal of decentralized processing while noble seems unattainable because there will always be a cost for processing the transactions. As previously stated technology, electricity and supporting infrastructure incur costs. Where there are costs, there must be corresponding revenue. The only cost free processor is the government which raises revenue through taxes and not through transaction fees.