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The Emergence of Blockchain and Distributed Trust Systems

Posted by Imam Hassan on May 21, 2019 8:27:51 PM

The global financial crisis of 2008 brought the world economy virtually to a standstill. What emerged from that crisis is the discussion herein; an open source, decentralized, peer-to-peer, digital currency, based on online public ledgers – blockchain. Blockchain is the technology used to verify and record transactions and lies at the heart of "Bitcoin," the first cryptocurrency. Bitcoin is a trustless, permission-less, and borderless (global) digital currency which has no central authority nor central point of failure.

The purpose of the introduction of Bitcoin right after the financial crisis was to mitigate the possible future damages that can be caused by central planning of large institutional organizations. Bitcoin and the blockchain space are currently an experimental playground of hundreds of different cryptocurrencies and decentralized platforms competing to be adopted by the mainstream. No one is certain where the outcomes of these experiments in digital currencies will take us, although there is no shortage of divergent speculation. Regardless of one's viewpoint, keeping an eye on this market is a wise move as there are many lessons to be learned from the impact cryptocurrency will have on finance and technology. Blockchain and cryptocurrencies like Bitcoin are sure to have a profound impact on the course of humanity.

Origins of Digital Currency

In October of 2008, a whitepaper entitled, "Bitcoin: A Peer-to-Peer Electronic Cash System," was published under the pseudonym "Satoshi Nakamoto." Satoshi may be one or more individuals, as his (or her) identity(s) is unknown. The paper combined many ideas from the cryptography and Cypherpunk communities to create a system of transacting without having to rely on or trust a third party intermediary. The whitepaper started a chain of events leading to the creation of the first cryptocurrency, Bitcoin. Following its introduction, Bitcoin slowly began to gain traction.

Early on, Bitcoin was mined, not traded. Mining is a two-step process where participants in the ecosystem offer their computers and CPU power to validate and save transactions that occur onto the Bitcoin database. The first step of the process is to verify a megabyte (Mb) worth of transactions with the second step adding that transaction to the bitcoin blockchain by solving complex mathematical computational algorithms. For their efforts, the miners are awarded newly "mined" or created Bitcoins. The miners that provided more computational power to the network received more Bitcoins.

As more and more miners joined the ecosystem, it gradually evolved to being traded rather than just mined. As more trading occurred, the value of the digital currency fluctuated based on supply and demand. As Bitcoin's value was established, users started trading Bitcoin for products and services. The most famous transaction using bitcoin occurred in 2010 when a Florida based programmer, Laslzo Hanuecz, sent out 10,000 bitcoins to a man in London, who in turn called a Florida local pizza shop to send two pizzas to Laslzo. Based on the two-pizza purchase, the value of the transaction -at that time- was around $25. The value of 10,000 Bitcoins today would be over $50 million.

Currently, the market cap of the cryptocurrency ecosystem is over $150 billion; at its peak, it was estimated to be $800 billion. Not unlike any traded commodity, there have been many bubbles. As its adoption among the mainstream increases, more fluctuation is anticipated. Challenges will thin the cryptocurrency' herd' as many will fail to be adopted by the mainstream. Most cryptocurrencies are scams with no viable product or solution. For these, the goal is to lure individuals into investing so the fraudulent actors can take that money and run.

Not unlike the dot.com bubble of 1994-2000 whereby a small minority of speculative assets were adopted by the mainstream, with the majority ceasing to exist, cryptocurrencies hold no guarantees of being accepted or adopted by the mainstream.

The Face of Change

'Digital' is transforming the world before our eyes. While our living environment changes at an ever-accelerating rate of exponential growth, there's one component that has remained relatively constant, governing the consequences of life – money. We may be living the time where we will witness the change in the properties of money due to the growth of digital and its transformative nature.

The progression of technology is interconnecting societies globally. Given this acceleration in interconnectivity, there are more people disconnected –‘unbanked'– from the modern banking system than there are those who are connected to it, banking within the current financial system. The introduction of cryptocurrencies are allowing these individuals to serve as their own bank. A simple software download is all that's required. Being your own 'bank' allows you to send your money to another 'bank' across the globe instantly without any third-party involvement. However, such capability requires a high degree of personal responsibility and security.

This doesn't mean banks will be going away anytime soon; they are vital to the economy. It means that the cryptocurrencies and banks will be working collectively, competing for market share and further innovating financial technologies.

A Call to Action

The potential to create an alternate economy that operates outside -or alongside- the current financial infrastructure means that technology will be even more critical to its success and sustainability. Tech Data's role as one of the world's largest technology distributors stands to be at the forefront of this new emerging market. Our capabilities, experience, knowledge, and representation of all the top technology OEMs, virtually guarantees the company a seat at the negotiating table in what is sure to be a dynamic exchange of viewpoints and decisions. Two technology areas where Tech Data's expertise can contribute to blockchain and cryptocurrency services involves GPUs and hardware wallets (e.g. Trezor, Ledger Nano, etc.). Accepting cryptocurrency for products and services as a payment option would provide a revenue stream from customers who prefer using cryptocurrency to pay for products and services. Earlier this year, Avnet began accepting cryptocurrencies as payments along with global tech giants Microsoft and Newegg. Retailer Overstock.com and travel services provider, Virgin Galactic are also now accepting cryptocurrency payments. With over 300,000 bitcoin transactions per day, positioning Tech Data to accept cryptocurrency payments and or sell products demanded by this emerging market could be a lucrative opportunity.

During the gold rushes of the 1800s, the companies that profited were the ones who sold shovels (for extracting) and safes (for storing). In a cryptocurrency bull market, the profiteers will be the ones selling GPU's and hardware wallets.

About the Author

Imam Hassan is an employee at Tech Data Corporation. Imam has been involved in blockchain research since 2012. He began consulting in his spare time to educate users on the potential of blockchain technology and promote best practices to ensure the security of their cryptocurrency assets. Note: Imam is not a financial advisor. His research and opinions should not be considered as the basis for any financial decision-making. You can follow Imam on LinkedIn at https://www.linkedin.com/in/imam-hassan-b6a870108/

Tags: Security Services, Blockchain, Cryptocurrency, Fintech, Fiat Money, Bitcoin, 2008 Financial Crisis, Digital Currency