Blockchain Economics: the rise and fall

Let’s be honest- our lives are all about technology. With the rising need to modernize everything, people are more than eager to accept new inventions as and when they come. From using a basic telephone to now using speech for giving commands to artificial intelligence; modern technology has become indispensable in our regular lives.

Advanced technologies such as AR, VR, and IoT have gained pace in the past decade and now there have been new additions to the pack, i.e., Blockchain Technology and Bitcoins.

Bitcoin is a form of electronic cash. It works just like online wallets such as PayTm and PhonePay. One can send money from their online wallet to friends, buy things online and offline and much more. It is entirely online and works 24x7.

Bitcoin was created by an anonymous group of persons headed by Satoshi Nakamoto. Now a group of developers (mostly volunteers) and miners help run the Blockchain Network.

What is a Blockchain?

Blockchain can be defined as a continuous data structure that holds transactional payment records while ensuring greater security, transparency, and decentralization of service. One can also consider it as an endless chain of files stored in continuous forms of smaller blocks which are not controlled by a single high authority.

A Blockchain is considered to be a distributed ledger that is entirely open to anyone and everyone on the network. Once a piece of information is stored on a Blockchain, it is challenging to modify or alter it later.
Each transaction on a Blockchain system is secured with a unique digital signature that proves it's authenticity. Due to the use of military-grade encryption and such digital signatures, the data records stored on the Blockchain are absolutely tamper-proof and unalterable.

The rise of virtual currencies and the Blockchain Network

The surge of the Blockchain economy and services such as Bitcoin and Etherum has been surprising, to say the least. Initially thought to be of no value, digital currencies have been breaking the limits of valuation. The Bitcoin reached its highest ever amount of US $19,783.21 on December 17, 2017.
It has various benefits over conventional currency:

1. Blockchains are always decentralized in nature. No single person or group holds authority over the entire network and cannot exercise their power over it.

2. With the use of Blockchain technology, the interaction between any two parties through a peer-to-peer model is easily accomplished directly, without the requirement of any third-party service.

3. It is immutable. For example, whatever is once said cannot be changed. We can ask the listener to perceive it in a different way, but the words and how they were said remain rigid and set. This is how immutability works. 

4.Blockchains are considered to be very secure and tamper-proof for any change in even one single block can be detected and addressed smoothly. There are two fundamental ways of detecting tampering-hashes and blocks.

The technology of Blockchain and its famous product called Bitcoin, however, came as a single package. Bitcoin is a type of digital currency without a central bank, with the transactions verified and recorded in a distributed ledger, the Blockchain.

People considered this technology as the beginning of a revolution that would make the government and other centralized authorities, obsolete. It was this kind of hype and not the commercial success of Bitcoin that powered an investment craze, pushing up the currency value of Bitcoin, generating plenty of other cryptocurrencies in the process.

In 2017, schemers launched the so-called ‘Initial coin offerings’ that attracted over $20 billions of investment, mostly from prominent retail investors, according to the website Coin schedule.

However, since the beginning of 2018, the dollar values of crypto-currencies have collapsed. The two leading crypto-currencies, Bitcoin and Etherum have collapsed most spectacularly, losing up to almost 75% of their initialBitcoin dollar value, and it appears that the retail investors are also the ones hurt the most.

Despite its popularity, the Blockchain economy is on a fall.
New York University professor and global economist Nouriel Roubini testified before the U.S. Senate Committee on Banking, saying that crypto-currencies such as Bitcoin are the mother of all scams and bubbles.

One of the main reasons why Bitcoin has failed to achieve adoption till date is because systems built on mutual trust, norms, and some institutions inherently function better than the type of systems the Blockchain technology envisions.

Also, the number of retailers accepting crypto-currency as a valid mode of payment is declining, and its biggest customer corporate boosters like IBM, NASDAQ, Fidelity, Swift, and Walmart have gone long on the press but short on the actual support. Even the leading Blockchain company Ripple doesn't use Blockchain in its product.

In the long run, however, there is a possibility of many successful cases emerging. According to Ray Valdes (CTO ConsenSys) and Kate Mitselmakher (CEO Bloccelerate VC), the next generation of Blockchain technology will resolve many current limitations, such as scalability, privacy controls, toolset maturity, and interoperability.

‘Price-stable tokens regulated by monetary policies will start to gain attention as they become more reliable as a means of exchange and as a store of value. Governments which have failed to create a successful crypto-currency till now will eventually turn to "stable coins" as their virtual currency of choice.'

For now, the popularity of this technology seems to be dwindling, but the same cannot be said regarding its future. Not all hope is lost and if research is to be believed, there are bigger, better things coming.

                                                  - Sonal Bera

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