Over the past year, public blockchain networks such as bitcoin and Ethereum have demonstrated exponential increase in developer activities, market cap, and demand. The state of permissioned blockchains is questionable, primarily because of the lack of successful commercial applications and fully integrated blockchain platforms.
Bitcoin is positioning itself to evolve as an alternative financial network to existing banking systems. It is currently at the optimal state in terms of development wherein the demand toward the technology is increasing at a rapid rate and the bitcoin network is being adopted by general consumers, investors, and companies. The Bitcoin Core development team has also recently rolled out Segregated Witness (SegWit), a scaling and transaction malleability solution that has already drastically improved the bitcoin protocol by decreasing the size of bitcoin transactions, blocks, and the mempool.
“Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attention and scrutiny even if it had not been functional.”
Most importantly, bitcoin is at a state wherein the public and the finance industry have already realized that contrary to controversial and baseless criticisms from key figures like JPMorgan CEO Jamie Dimon, bitcoin is not a fraud and that it is a decentralized financial network that cannot be prohibited and regulated. Thus, for example, The Bank of Finland has encouraged economists in the finance sector to study the “marvelous structure” of bitcoin and how the bitcoin protocol operates as its own economy and monopoly.
“Bitcoin is a monopoly run by a protocol, not by a managing organization. Familiar monopolies are run by managing organizations with discretion to determine and then change prices, offerings and rules. Monopolies are often regulated to prevent or at least mitigate their abuse of power. Bitcoin is not regulated. It cannot be regulated. There is no need to regulate it because as a system it is committed to the protocol as is and the transaction fees it charges the users are determined by the users independently of the miners’ efforts. Bitcoin’s design as an economic system is revolutionary and therefore would merit an economist’s attention and scrutiny even if it had not been functional”, Bank of Finland explained in its research paper.
Bitcoin as a Payment Instrument
While bitcoin as a financial technology is being embraced by central banks like Bank of Finland, in regions like Japan, bitcoin is being actively used as a payment method. Some of the country’s largest conglomerates including major retailer Bic Camera, largest budget hotel chain Capsule Hotel Anshin Oyado, and leading airline Peach have been accepting bitcoin since earlier this year, when the government of Japan officially recognized bitcoin as a “prepaid payment instrument”.
Large-scale companies like Bic Camera and Peach are collaborating with the Japanese exchange market’s leading trading platforms such as BitFlyer and Coincheck, that have over a million active users in the Japanese market alone. The acceptance of bitcoin by Japanese merchants also increased as the Japanese financial regulator Financial Services Agency officially authorized 11 bitcoin exchanges with a national licensing program.
In the west, particularly in the US, major banking institutions such as Goldman Sachs are also focusing on addressing the growing demand toward bitcoin and cryptocurrencies. In the first week of October, the Wall Street Journal reported that sources familiar with the matter revealed Goldman Sachs’ plans of operating a cryptocurrency platform for institutional investors and retail traders.
“Goldman’s effort involves both its currency-trading division and the bank’s strategic investment group, the people said”, Paul Vigna, a Wall Street Journal reporter, wrote. “That suggests the firm believes bitcoin’s future is more as a payment method rather than a store of value, like gold.”
Despite its security issues and vulnerabilities, multi-billion dollar conglomerates are implementing enterprise-grade permissioned blockchains to automate large-scale operations. Most recently, pharmaceutical corporations Pfizer and Genentech with a combined market cap of over $300 billion, announced the introduction of the MediLedger Project, a blockchain-based supply chain application that uses JPMorgan’s Quorum blockchain.
“Instead of a single, centralized database, each participant operates a copy of the database, verifies transactions, and engages in a protocol that ensures universal agreement on the state of the ledger.”
Since early 2017, JPMorgan has been cooperating with developers within the Enterprise Ethereum Alliance to create a blockchain platform that can be used by conglomerates with increased flexibility and real-time processing of data. Quorum was structured after Ethereum’s Go client, like a centralized but a more flexible version of Ethereum. Through the usage of smart contracts and JPMorgan’s Quorum, the two pharmaceutical giants have planned to prevent fraud and illegitimate medicine from entering the supply chain of the pharmaceutical industry.
“Ensuring the safety of people receiving our medicines is of utmost importance to us. We look forward to exploring the potential benefits that this pilot could provide in protecting our medicines across the entire supply chain”, Marc Watrous, Genentech senior vice president of Managed Care and Operations, stated in an interview with Fortune.
Other companies such as Intel and IBM are working with blockchain consortia like the Hyperledger Foundation to create blockchain applications for specific use cases and problems. Most recently, the Intel development team released the Sawtooth Lake blockchain platform, which was developed as a highly modular and high performance infrastructure for commercial uses.
“Hyperledger Sawtooth is an enterprise distributed ledger (aka blockchain) project. Our design philosophy targets keeping distributed ledgers distributed and making smart contracts safe - particularly for enterprise use. In fitting with this enterprise focus, Sawtooth is also highly modular. This enables enterprises and consortia to make policy decisions that they are best equipped to make,” explained the Intel development team.
Intel’s development team emphasized that while permissioned ledgers are centralized, Sawtooth can be decentralized to a certain extent, wherein participants within the network can verify or reject the confirmation of administrators.
“Distributed ledgers are shared databases with the unique feature that they do not rely on a central authority or intermediary. Instead of a single, centralized database, each participant operates a copy of the database, verifies transactions, and engages in a protocol that ensures universal agreement on the state of the ledger,” the Sawtooth team added.
Our humble nordic friends in Finland continue to top the world’s ‘best of’ charts. And they may soon take the lead when it comes to using blockchain for social good. In partnership with Helsinki startup MONI, the Finnish Immigration Service has been providing refugees and asylum seekers with prepaid cards supported by blockchain. The card provides a verifiable digital identity and offers opportunities to people who don't have access to modern financial services.
Damn Finns and their socially conscious tech, making us all look bad.
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]