The blockchain phenomenon, highlighted for several years as the carrier technique of bitcoin and cryptocurrencies, does not only concern money transfers. There are many possibilities for using this promising system in the fiduciary world. Zoom in on this new technical device.
A Blockchain To Secure Money Transfers
In recent months, the fluctuation in the price of bitcoin has allowed a large uninitiated public to know, even superficially, this cryptocurrency. A cryptocurrency, or virtual currency, performs the same functions as a traditional currency. Either it is a unit of account (for the performance of obligations), or it allows the financial measurement of a good or a service (as a standard of values).
Bitcoin, unlike so-called traditional currencies, is not legal tender. This means that no business, physical or virtual, has any obligation to accept virtual currency, now or in the future. It is therefore based on the price of supply and demand and remains constantly fluctuating and speculative.
As Robert Shiller, professor at Yale University and 2013 Nobel Laureate for Economics, explains, bitcoin is a cryptocurrency with a purely speculative asset. Its evolution does not correspond to any fundamental market data and its value is independent of any external factor. Other renowned economists have not hesitated to define bitcoin as the biggest bubble in history, a bubble that exploded shortly after 2018.
Blockchain, An Intrinsically Collaborative Technology
Since 2008, “year zero” of bitcoin, this payment system has allowed a community of users to exchange goods and services among themselves on the Internet, in a dematerialized, transparent and secure manner. This security is also provided by the blockchain. Blockchain is defined as the method of storing and transmitting information without recourse to control bodies. This is also its interest: managed by this community of users, it is not the tool of any banking authority or any state.
Users are therefore at the heart of the blockchain information transmission process. The latter is in fact not autonomous. The contributors to the blockchain, called “miners”, maintain it and therefore maintain the cryptocurrency transfer protocols. The use of the blockchain therefore requires a certain computer power and therefore results in a significant energy consumption for monitoring and securing all transactions, and in full for the creation of new “blocks” in the “chain”.
These miners therefore provide their resources (computers and electricity) on which these operations will be carried out. The benefit for blockchain is in the gratuity they get on every transaction made on the created block. However, there are other issues for the survival of this system.
On the one hand, the blockchain development services make it possible to keep the blockchain and cryptocurrencies alive, and on the other hand they carry out the “harvest” or “mining” (at the origin of the word “miner”) of the said cryptocurrency, then can to keep. By creating and validating the blocks of the bitcoin blockchain, a miner today allows the creation of 12.5 bitcoin per block.
In limited and finite quantities, the phenomenon of speculation gravitates and haunts virtual currency. Today, those who invest in cryptocurrency are either people interested in the final scarcity, or people wanting to make short-term profit, (pouring in in recent months). There are also Internet users who buy cryptocurrencies for their primary function, namely the possibility of using it to replace traditional currencies managed by institutions.
A State Divergence Of Views On Virtual Currencies
States and monetary institutions are not all in favour of the peer to peer currency system ,generated via the blockchain. In terms of regulations, there are different frameworks. The development and expansion of a whole new type of currency worries various states which see in this system the end of the political and financial oligarchy over payment systems. Some countries will limit the use of electronic currencies to banks, other countries will regulate these currencies by placing them under their public powers (for example by taxing those who use them).
Strict regulatory frameworks for the use of cryptocurrencies, or even the prohibition of its use; different are the governmental points of view and wills. We find in particular cases of prohibition in Bangladesh, Bolivia, Ecuador, Nepal and Kyrgyzstan as well as in Russia. Furthermore, Japan accepts bitcoin as an official payment method.
Estonia, for its part, wants to create its own national cryptocurrency; however, in September 2017, the ECB formally prohibited him from taking action because any competition with the Euro is prohibited. Still other states, such as Sweden or Uruguay, hope to stop the production of fiat money in order to authorise forms of digital money; the objective being to control them like coins and banknotes (which have become too costly to produce, compared to the cost of producing virtual currency).
These countries therefore become opposed or stakeholders in the development of cryptocurrencies. The ECB formally forbade him to take action because any competition with the Euro is prohibited. Still other states, such as Sweden or Uruguay, hope to stop the production of fiat money in order to authorise forms of digital money; the objective being to control them like coins and banknotes (which have become too costly to produce, compared to the cost of producing virtual currency). These countries therefore become opposed or stakeholders in the development of cryptocurrencies. The ECB formally forbade him to take action because any competition with the Euro is prohibited.
Still other states, such as Sweden or Uruguay, hope to stop the production of fiat money in order to authorise forms of digital money; the objective being to control them like coins and banknotes (which have become too costly to produce, compared to the cost of producing virtual currency). These countries therefore become opposed or stakeholders in the development of cryptocurrencies.
In the case of financial institutions, the various banks and stock exchanges also have their views on the issue. With the democratisation of the blockchain, their usefulness in transactions is being called into question. These institutions will no longer have to confirm the verification of an account balance to carry out a transaction, this will be the role of the blockchain.
In addition to the states and banks that govern currencies, payment platforms , developed simultaneously, and with the various possibilities for spending on the Internet, are threatened by cryptocurrencies. Electronic currencies like bitcoin are based on the principle of avoiding the mobilisation of third parties, and in particular third parties who can act on transactions. This is the very nature of platforms such as Paypal or Visa, which exist as trusted third parties to secure these transactions over the Internet.
In addition, the main principles of bitcoin and blockchain are attractive to players in financial systems (with the concepts of sharing, transparency, and reliability) in order to facilitate the daily lives of users.
The BOE (Bank of England), for example, is working on the deployment of a cryptocurrency, derived from the pound sterling that would allow customers to free themselves from current physical constraints (retail banks and bank offices, notaries, etc.) The system would also allow large transactions to be made almost instantly. Cryptocurrencies can also strengthen an economic network under construction in Africa, where there are many disparate territories: this currency would therefore aim to reduce these inequalities, and strengthen the attractiveness of a territory increasingly in demand. These examples show the potential field of possibilities offered by blockchain tools in the field of finance.
We then realise that virtual currencies are not accepted by all equally. The lack of perspective and the lack of knowledge of cryptocurrencies and the techniques from which they come, push most monetary players to protect themselves from them. We note that competition remains, in parallel with traditional monetary institutions.
Some financial players have therefore understood the usefulness that cryptocurrencies can bring them, while others are skeptical in view of the risks that users can run with this type of technology. This therefore creates an important balance of power between all these actors, each for different interests.
Published January 3rd, 2022