Is it the Blockchain or the Crypto?
This week, we again return to the market’s hottest topic: Cryptocurrencies. Crypto has dominated the finance news for the past few weeks. Recently it broke through the $5500 (CAD) mark at the beginning of the month. To put that in perspective of true dollar terms - 1 Bitcoin would be enough to max-out a TFSA for one year. Just let that set in for a second…
However, the price has cooled off in recent days - yes DAYS!!! Coming back down to a little north of $4500 ( I wrote this on the 13th - so who knows where the price will be Sunday). In the recent week - China banned crypto exchanges and outlawed the trading of cryptocurrencies for the world’s most populous country. One of China’s biggest exchanges also announced they would stop trading by the end of the month! Jamie Dimon - CEO of JPMorgan said this past week “that anyone to invest in bitcoin is stupid” and “the whole thing is a fraud”. All these crypto-maniacs cannot all be wrong or can they? The price of bitcoin just doesn't soar to $4500 or does it? The currency still has no central banking authority and few place actually accept the currency so what gives?
So what gives?
In my honest opinion I do not know where bitcoin or other crypto’s will end up. They may end up being the next form of currency but I do not see this happening for many years. For more info on cryptocurrencies refer to my previous article or podcast 1 or 2
However, what I do see going places is the underlying technology behind cryptocurrency - Blockchain technology. To sum blockchain up in one sentence is no easy task but here goes.
In essence blockchain is a peer-peer decentralized system with no intermediaries where transactions (passage of info) are stored in blocks that link up in a chain essentially forming a worldwide ledger. In its most rudimentary sense - you can think of applications like facilitating transfers of money or cryptocurrency between two parties without the need for any intermediary. No bank, no western union, no paypal, no interac-e-transfer. The emphasis here is to create a peer-peer decentralized system with no intermediaries.
Blockchain as an industry disrupter?
Blockchain also poses as the next industry disrupter - just like the internet made many jobs and many products irrelevant- I think blockchain can be the same kind of juggernaut. The only difference here is the internet did not replace the way we work it just facilitated many tasks and made them easier to complete. Blockchain will change the way we work a complete infrastructure overhaul will need to take place.
The blockchain or ledger is able to store anything. From property to ownership rights, personal information, health information and much more everything will/can be stored on the ledger. People will unique access code and the ability to create “private blockchains” do exist limiting people to access material information when necessary. If we look at healthcare for example, records can be stored on the ledger allowing access to yourself and all your health professionals. Receipts of procedures can also be on the ledger and facilitate claims procedures.
In terms of security, while the entire system is public, when it comes to personal information you have the ability to encrypt key pieces when you need to and choosing which companies or products you apply to have access to that information. Transaction are verified by the mining or hashing process in which processing power is harnessed to run the blockchain algorithm to verify the block of transaction. Deloitte - a member of the big 4 accounting firms picked up on this and have begun building their consulting business creating blockchain consultants to supplement for the loss of revenue from auditing (their biggest department). Since blockchains can verify transaction - the job of an auditor is rendered useless (or a drop in demand occurs) as their primary role is verifying financial information. You can read more about it here
While I admit I am no expert in this yield I urge you to learn more about this technology. I realize I have provided a very broad and limited scope on this topic but this is just to serve as an introduction to the topic. You can go here to see more blockchain applications.
Disclaimer: All of the above information is my own personal opinion. I do own small position in Bitcoins, Litecoin and Ethereum which I initiated this past week. I may increase these positions in the coming weeks. Please use diligence when making investments in general and when investing in cryptocurrencies. Crypto’s are very volatile and trade 24/7. Please do your research and be aware of this.
While I admit I am no expert in this yield I urge you to learn more about this technology. I realize I have provided a very broad and limited scope on this topic but this is just to serve as an introduction to the topic.
Thumbnail Image: Gito's Lib & Lab