By 2017, Blockchain Technology was worshipped among geeks and programmers and had spread around the whole world. Later the technology, along with Bitcoin and ICO (Initial Coin Offering), became the cryptocurrency hits that almost everyone was talking about.
With the growth of Bitcoin’s influence around the world and the scale of ICO reaching new peaks, many Internet startups have joined the market by launching digital currencies of their own, including Chinese technology companies Xunlei’s LinkToken, Renren.com’s RRCoin, among others.
But the boom came to a halt in mid-2017 when the Chinese government began shutting down ICO and Bitcoin trading platforms, followed by a national policy tightening restrictions on trading with regions beyond China, due to major hidden risks inherent in digital currency trading. However, some investors remain optimistic about digital currency and Blockchain technology, such as the founder of ZhenFund, Xu Xiaoping.
Here, we explore the risks and potential of Bitcoin, ICO, and Blockchain Technology, as well as the next steps in the development of these hot technologies.
Blockchain is a continuously growing list of records, referred to as blocks, linked and secured using cryptography. Each block typically contains a link to a previous block, as well as a timestamp and transaction data within. Blockchain is prevailing all over the world thanks to two reasons in particular:
On the one hand, data housed within Blockchain technology is inherently resistant to modification. It is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. This can be widely adopted in peer-to-peer networks, no matter whether it is adopted for trading, digital services, or other functions. Once data is recorded within a Blockchain, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires collusion of the network majority.
On the other hand, Blockchain is an example of a distributed computing system with high Byzantine fault tolerance. Blockchain contributes to a decentralized consensus, making the technology potentially suitable for the recording of events, medical records, and other management activities, such as identity management, transaction processing, documenting provenance, food traceability, or voting.
Bitcoin is a representative Blockchain application, which offers a cryptocurrency and worldwide payment system. Firstly, it is a decentralized digital currency because its system works without a central bank or single administrator. Instead, transactions take place between users directly on peer-to-peer networks, without an intermediary. These transactions are verified by network nodes through the use of cryptography and recorded in a publicly distributed ledger that applies Blockchain Technology.
Released in 2009, Bitcoin was created as a reward for a process known as mining, which can also be used for exchanging other currencies, products, and services. These days, there are various merchants and vendors accepting Bitcoin as payment all over the world.
At the time of Bitcoin’s release, one USD dollar might be exchanged for more than 1300 Bitcoins. Recently however, the price of one Bitcoin exceed USD 10,000, constituting a price increase of more than 1000 million times in only eight years. Though the price of Bitcoin experienced several minor collapses in 2014, 2015, and 2017, the overall trend is an increasing one, peaking at nearly USD 20000. Moreover, the number of Bitcoins is limited to 21 million, and can only be created through the process of mining. Because of this, Bitcoin provides an investment option for various citizens due to many reasons. For example, some think Bitcoin can be used against inflation, and some think highly of its decentralized structure for trading cases, and so on.
However, because of its features, the cryptocurrency also works well with informal transactions, criminal activity, etc. And these transactions are often hard to track in a decentralized blockchain. At present, only 0.57% of citizens hold over 80% of the Bitcoins in the world. So, with the investment trend of Bitcoin increasing all over the world, many countries have grown vigilant and have established warning mechanisms. Additionally, the supervision policies and regulatory framework around Bitcoin transactions are becoming more restrictive in many areas around the globe.
For example, China’s government announced a halt in all the Bitcoin transactions at the end of September, though mining continues to operate normally. Later, not only Bitcoin, but other digital currency as well were affected and banned from the Chinese market. Apart from China, Russia also blocked Bitcoin transactions, and India’s government has warned investors that they should pursue Bitcoin at their own risk.
Before 2017, with the rapid appreciation of Bitcoin, a “token” called ICO, a derivational concept from Bitcoin and Blockchain, spread across many countries. ICO is a means of crowdfunding centered around cryptocurrency, which can be a source of capital for startups, enterprises, and so on. Many people participated in the investment frenzy at a high cost. In an ICO, some quantity of the crowdfunded cryptocurrency is preallocated to investors in the form of “tokens,” in exchange for a legal tender or other cryptocurrencies such as Bitcoin or Ethereum. These tokens become functional units of currency if or when the ICO’s funding goal is met and the project launches.
ICO provides a way by which startups can avoid costs of regulatory compliance and intermediary financial organizations, while increasing risk for investors. Just in the last year, the amount of financing fundings raised from ICO exceeded USD four billion, a quarter coming from China. In some jurisdictions, ICO may fall outside existing regulations or may need to be regulated depending on the nature of the project. In some places, ICO is banned entirely, such as in China and South Korea.
These innovations, no matter whether they be Bitcoin or ICO, truly offer a new means and potential for various traditional application scenarios, but they carry high risks of their own due to their potential for misuse and stability concerns. The result depends on how to use them, or who will ultimately adopt them. This makes the further development of ICO, Bitcoin, and Blockchain in 2018 the desirable expectation for many.
However, the financial sector, such as the realm of digital currency, is only one application of Blockchain technology. Moving forward, we can expect the creation of richer services and product forms based on Blockchain, such as its adoption in the following fields: IoT (Internet of Things), logistics, public services, digital copyright, insurance, gaming, and so on. Here we take two examples as follow:
Logistics: in this field, Blockchain can be used to record and transmit a reliable flow of logistics information, as well as capital. Moreover, relying on Blockchain’s distribution features, it can well optimize resource utilization, reduce costs of middle links, and promote logistical efficiency.
Public services: ID information, passport, driver license and other related information can be reserved in blocks dependent on Blockchain Technology. Besides, Blockchain enables a new information sharing means between governments, citizens, and other organizations. Such as public policy and other government sectors involved with information can be publicly accessible via Blockchain without concern of security risks.
Blockchain has already had a large influence within some industries because decentralization may reconstruct and improve some business models. And all walks of life can gain from applying Blockchain in real scenarios.
Blockchain Technology and Bitcoin have proven that in the realm of technology, there need not be a central authority. Instead, just the communication between individuals can contribute to achieving a situation of tremendous value and utility. This is the victory of liberal humanism, though we have only taken the first step.
(Top photo from 699pic.com)