Blockchain: Back to Square One

October 30, 2016

Blockchain is a very real concept. It is a technology that is here to stay and its potential has yet to be fully realised. With blockchain slowly becoming the norm, it inevitably presents a significant opportunity in which to profit from. As the common saying goes, ‘knowledge is power’, so let’s take you back to square one.

The dominance of the middle man

One of the key issues of the future is how to best utilise technology so that it can support an ever-increasing number of transactions. As 21st century citizens, we often take for granted the work that is needed to support each and every transaction. At a minimum, the transaction needs to be verified, fulfilled securely and recorded accurately. And all of this is done by an intermediary. You need a bank to transfer money from one account to another, for example. You need a lawyer to facilitate contractual agreements. The list goes on. By this logic, the number of transactions that can be made are limited by the size and influence of a small number of intermediaries that we have no choice but to work with and trust.

Traditional business models are being turned on their heads

Blockchain solves the issue by removing intermediaries from the picture entirely while maintaining our core expectations for security, transparency and speed. The simple idea behind blockchain technology is that transactions are transmitted securely on blocks that cannot be altered. To change a previous block, you have to change all subsequent blocks – not a simple task. In this way you can get an accurate record of the transaction on the blockchain without the need to trust an intermediary to do so on your behalf.

Framed in this way, blockchain is a very real concept. There is no doubt that blockchain is here to stay. It has scale. The real question is how best it can be used.

Introducing Bitcoin

Bitcoin is famous for being first off the block as the first decentralised digital currency to facilitate payments off the blockchain network. It is no mean feat for it to have achieved somewhat of a reserve status in the space of a decade with Bitcoin payments slowly becoming an accepted alternative. Over 100,000 merchants are accepting Bitcoin in exchange for goods and services.

Removing the middle-man means cheaper and faster transactions without compromising security and this is something that Bitcoin has done very well. But its strength is also its weakness. Despite stealing the attention (and $1bn) of venture capital funding, the limitations of Bitcoin have become painfully real. Its application beyond financial transactions is still a mystery. And the fact is that for the general public, Bitcoin will remain a very abstract concept.

Is Bitcoin still a good investment?

At time of writing, Bitcoin is sitting at just over $600. Considering how its price has risen to that level in the space of 6 years is impressive. While not aiming to ignore or downplay the peak at $1,242 in 2013, Bitcoin has had its fair share of bull and bear runs and increased trading volumes over the past 3 years has seen Bitcoin follow a steady long-term uptrend for those who want to play the buy-and-hold strategy.

The basic law of supply and demand will almost dictate that the value of Bitcoin will continue to rise, ignoring other unknowns of course. The supply of Bitcoin is fixed at 21 million units and the effort required to mine (i.e. create) more Bitcoins up to that point gets progressively harder. (Which is why you see more and more Bitcoin miners jumping ship, but that’s for another time!) On the other hand, demand will outstrip supply assuming more and more Bitcoin transactions occur globally, unless for some reason in the future, there is a vote of no confidence against the cryptocurrency in favour of viable alternatives such as Ethereum. However, there is no reason why there is not enough room for two.

For full transparency, team emptybucket are not invested in Bitcoin as we have our eyes firmly on Ethereum as the next big thing. Ethereum today is where Bitcoin was in 2010. It is currently the second most popular cryptocurrency behind bitcoin but the fastest-growing. Psychologically, a price of £10 per unit was much easier to digest for us compared to Bitcoin’s and the appeal of backing the underdog’s untapped potential was there for the taking. Read on to understand why we put money on ether.

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