Above is my illustration, featuring myself in a futuristic laboratory setting, with an artificial intelligence female robot.
The impact of cryptocurrencies continues to proliferate beyond just Bitcoin as names such as Dash, Ripple Monero and Namecoin enter the landscape of digital currencies. Over the past year or so, cryptocurrencies have transformed from currencies that operate underground to become viable alternatives to existing fiat currencies, and as an emerging investment option. And if you need proof of the impact that cryptocurrencies are making on society, look no further than the Oxford Dictionary Online, which this year accepted “cryptocurrency” as a word. This comes after “Bitcoin” was added to the dictionary in August 2013, underscoring the groundbreaking significance of the cryptocurrency that is the brainchild of the mysterious Satoshi Nakamoto. Amidst these achievements, what is the state of play for cryptocurrencies so far this year? And importantly, what lies beyond these digital currencies?
As of 31 October 2014, the price of Bitcoin was US$336.80, with a market capitalisation of US$4,638,210,000 and volume of 12,545,400. Following a peak of more than $1100 in December 2013, 2014 has seen downward pressure on Bitcoin prices due in part to adverse events such as the sudden closure in February 2014 of Mt Gox, the world’s best-known exchange for Bitcoin, due to significant financial losses.
That said, Bitcoin and other digital currencies continue their forward march, receiving backing from notable personalities in the world of finance and economics. Bitcoin received an optimistic assessment from former United States Treasury Secretary Lawrence Summers who saw the potential of digital currencies such as Bitcoin to transform the economy in the information technology age. Mr Summers saw Bitcoin as an innovative approach to reduce financial frictions in the system, which refers to the time, effort and resources needed to make financial transactions. One area that cryptocurrencies can play an important role in is making fund transfers faster and more efficient. There need not be a time lag of a few days waiting for an overseas transaction to go through, or a need to line up at the ATM for a cash withdrawal. Countering sceptics such as economists, Mr Summers pointed to how the Internet was initially dismissed as no more important than a fax machine before it made the profound impact that it has. In that same vein, cryptocurrencies cannot be dismissed.
Cryptocurrency 2.0: Blockchain
Exciting changes are happening in the cryptocurrency landscape that prompt to look beyond the current state of play, namely at the technology underlying cryptocurrencies – blockchain. A team led by Vitalik Buterin is pushing for a more malleable blockchain after he found Bitcoin’s programming protocols too prescriptive. Development for the new concept – called Ethereum – is being funded by a recent online crowdsale from July to August 2014. Ethereum looks to be a more open software platform based on blockchain technology that enables the development of applications for a wide range of purposes. The blockchain technology that Bitcoin and in future Ethereum would be based on refers to a digital ledger of all transactions owned and monitored by everyone but ultimately controlled by none. It functions as a giant interactive spreadsheet everyone has access to and updates to confirm each digital credit is unique.
As alluded to by Mr Summers, blockchain has the potential to change how commerce itself works. It can be applied in a wide range of areas including stock exchanges, voting and even music distribution. Cryptocurrency BitShares’ founder and CEO Daniel Larimer calls such futuristic entities distributed autonomous corporations. In the case of the music industry, Larimer envisions artists having the ability to issue shares in their own songs and encouraging fans to help publicise their music to increase sales.
Another area where blockchain can be implemented is in payment processing. Most processors, such as Western Union, use hub-and-spoke models to process payments, and charge fees for crossing jurisdictions and for smaller transaction amounts. Decentralizing and distributing the network using the blockchain can change the game by getting rid of the costs associated with an intermediary. Blockchain could also affect credit card companies and address consumer data privacy concerns. According to Fred Ehrsam, the CEO of mega-Bitcoin payment processor Coinbase, a Bitcoin-like payment network would solve the problem of having credit card information stored with third-parties such as retailers. There are, of course, many technological and regulatory hurdles that have to be overcome for the potential of blockchain to be realised, but the benefits would well be worth it for companies and consumers.
On the computer screen also features the symbol of Bitcoin and… unveiling of Crypto Chain University’s new logo (soft launch).
Blockchain + AI?
Cryptocurrency and blockchain are not the only technologies emerging. Artificial Intelligence or AI is another promising technology that could revolutionise our lives. AI is essentially the theory and practice of building machines capable of performing tasks that seem to require intelligence and that typically have been performed by humans. It can be applied in anything form robotics to image recognition, and from language translation to cryptocurrency and blockchain.
Although AI is still an emerging technology, it has the potential to bring cryptocurrency and its underlying blockchain applications to the next level. Imagine AI managing the automated mining of cryptocurrencies such as Bitcoin. This could lead to faster mining speeds, less power consumed and manpower savings. On the blockchain, AI can also improve productivity by automating the vast amount of transactions that need to be verified. Given that both technologies deal with and are reliant on data, this strategic convergence could give rise in future to innovations that are greater than the sum of their parts.