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It may seem like an unnecessarily complicated process for moving money. But the blockchain has its advantages.
With traditional methods of payment for transactions in the world registered on privately-held databases owned by corporate and state entities. These databases are not accessible by the public and are therefore closed. They are also usually owned by one entity. Because of this nature, they could be cripple a network, unlike bitcoin's blockchain. Now think about the blockchain as a beefed up database. It records all transactions in bitcoins, does not allow repeat payments, and requires several parties to authenticate the movement of the digital coin.
Because the blockchain is not centralized, it also means that if one part of it went down, the whole network would not collapse. There are many different parts of the bitcoin network that require it to work. So, if anything, I would go out of action for example, transactions would still work.
Problems with bitcoin's blockchain
Bitcoin's blockchain was designed to be a decentralized network. With that, however, it has a number of problems.
One big issue is being bitcoined as the network has become more congested. This has led to disagreements by the number of parties that uphold the network on how the technology should develop into the future in order to address these issues.
For example, last year, a group of developers that did not agree on the future of bitcoin, broke off and split the underlying blockchain. This led to the creation of a bitcoin offshoot known as bitcoin cash. Another so-called fork happened, resulting in bitcoin gold.
And forks bring their own problems. New coins that are often dominated by a smaller number of miners. They could potentially falsify the blockchain ledger. This has happened recently with bitcoin gold.
Flagged up, including the presence of illicit material buried in the bitcoin blockchain. We know that a single block contains data required for a bitcoin transaction to go through. As well as child pornography. These standard images or video files would be encrypted along with the legitimate bitcoin data and are very difficult to find.
One other weakness of bitcoin's blockchain is also the very thing that makes it attractive: rewards. As mentioned earlier, miners who maintain the network are rewarded in bitcoins. But it costs a lot of money in the form of energy to run the purpose-built computers and specialist hardware. Bitcoin has to be profitable. Wall Street analyst Thomas Lee of Fundstrat who said $ 8,038 for one bitcoin would be profitable for miners. But if bitcoin remains a long period of time, many miners could theoretically walk away. The result could be a meltdown of the bitcoin network. I know, this has not happened.
But this kind of volatility is clearly not fit for business. Therefore, many companies started looking for the principle of blockchain technology and adapting it to their business. The parts of blockchain technology that have attracted companies, including the ability to make transactions more efficient, a reduced number of intermediary parties involved, and lower processing costs. When we find out about the bitcoins blockchain have not been adopted.
What other blockchains are there?
The bitcoin blockchain is not really made for companies to build apps and processes on. Blockchain platforms to help companies interested in the technology build processes.
Ethereum, Ripple, Hyperledger, IBM, R3, are just a few names that have developed such platforms.
Ethereum is essentially a blockchain platform that specializes in smart contracts. It has a digital coin known as ether linked to it. Second is the largest cryptocurrency by value. Like bitcoin's blockchain, Ethereum's is also public. Think of how companies like Apple and Google release software developers kits to allow people to build apps on their various platforms. Allowing people to build "decentralized apps" on their platform, leveraging their blockchain and potentially using the digital coin and their power to product.
Smart contracts are contracts that automatically execute when certain conditions are met from all interested parties. No process along the way.
Meanwhile, Ripple is a blockchain specifically designed for cross-border currency transactions. The movement of money from one currency to another across the world, particularly for large businesses, is expensive and takes a long time. The process involves lots of different parties from banks to clearing houses. Ripple's blockchain system, known as xCurrent, a cut-off to a cross-currency transaction to seconds.
It also has a cryptocurrency attached to it known as XRP, but it is not necessarily needed to power its xCurrent product.
The financial services industry has been one of the first movers when it comes to experimenting with the blockchain. CNBC spoke to two major banks, who are trialing the technology.
