The existence of decentralised technology and cryptocurrencies can be considered as proof of society’s demand for decentralisation, as well as demonstrating the possibility of a new paradigm of financial systems and investment models. It is also conceivable that decentralisation may become a vital factor for the future prosperity of nations.
There currently exists many examples of centralised financial systems, supervised and led by regulators, which are closed and wholly controlled within their own ecosystems. Today, we can see an entirely new philosophy coming into play. It is a philosophy which demonstrates the possibility of the existence of a system that is not controlled by anyone, that is completely open and, moreover, is entirely secure. This is potentially what the future will look like.
As we look at it today, the Bitcoin network has scores of both benefits and drawbacks. Among the latter, we can list the transaction speeds and fees, pseudonymity, the high risk of criminals gaining access to accounts, transactions designed to be irreversible (this can be a problem where a transaction is made by mistake), and several further issues. Many of these problems are due to the technical setup of the Bitcoin network, and are already in the process of being addressed. One such solution is the introduction of the Segregated Witness (SegWit) protocol, implemented in February 2018, which was intended to provide protection from transaction malleability and an increase block capacity. At the same time, difficulties and the increased interest in Bitcoin itself are caused by Bitcoin’s growing value and mass investor attention on the world’s first cryptocurrency.
As this attention and demand grows, the number of queries and transactions in the Bitcoin network grows with it – something that the network itself is unable to properly handle. These ‘growing pains’ on one hand make perfecting the whole system a priority, while on the other hand can lead to the appearance of entirely new cryptocurrencies, (as we will see), which could achieve different kinds of functionality more effectively on a technical level.
One area which is open for such improvement was mentioned earlier – user anonymity. Extensive anonymity is something that is offered nowadays by several alternative cryptocurrencies, which appeared in the wake of Bitcoin, and which aimed to bring innovation or redesign to the Bitcoin network. These have sought to provide complete anonymity and total financial freedom for their users. Among this list of ‘anonymous currencies’ are Monero, Zcash, and Dandelion (redesigning the Bitcoin network for anonymity), and several others.
Now it is time to say decisively that the Bitcoin network – the first decentralised digital currency – in some ways, has been a test-bed for debugging a wholly new kind of financial system for handling the decentralised transfer of assets. Network glitches have led to debates in the crypto community that have prompted the appearance of new technological solutions, increased the range of cryptocurrencies around the world, and further spread the ‘decentralisation virus’ at the mass user level. This clash between traditional and new, decentralised philosophies serves to recruit more and more supporters and detractors for each of the two theories. These days, Bitcoin has both fans and foes, which means there are conflicting and contradictory visions for the future of cryptocurrency, and for the decentralised paradigm as a whole. There is no unity of opinion – either on what Bitcoin’s prospects are, or on what Bitcoin’s price should be. Whereas over the past year, advocates of decentralisation were forecasting Bitcoin’s value to hit a million dollars by the end of the decade, today its rapidly fluctuating value and frequent downturns mean only a few continue to voice such optimistic projections.
The strategies of Bitcoin’s supporters and detractors are themselves changing – and all caused by the fact that this year saw the start of the ‘war of the systems’ – (or ‘war of the worlds!)’ – the centralised versus the decentralised.
Today, with regulators the world over intent on bringing decentralised systems to heel and making plans to bring in a global strategy for managing cryptocurrency markets by the end of 2018, the number of decentralisation supporters in the ‘traditional camp’ has noticeably decreased (which is hardly surprising) – or they are having to change their ‘camp’. It’s a standoff that clearly explains statements made by some officials, that sometimes contradict the actions of the companies they lead. To give one example, in spring 2017, Wences Casares – a board member at PayPal – shared his positive assessment for the relative growth in the price of Bitcoin for the upcoming decade. His announcement sent shockwaves through global markets – because the end-price he put on that growth period was no less than one million dollars. Yet, in December 2017, came the announcement that PayPal was freezing all user accounts connected with any cryptocurrency-related activity. Copycat blocks were swiftly brought in by the Mastercard and Visa payment systems – whose cards had, for around a year, allowed access to various different cryptocurrencies, for those of their users who wished to carry out cryptocurrency transactions from any location. To give an example, Wirex’s cryptocurrency service had, at various times, set up collaborations with both payment systems – only to then abandon them, due to the enforcement of global policies by Mastercard and Visa.
Meanwhile, cryptocurrencies and decentralisation have been leading to radical changes in investment markets – making them more accessible to small and mass-market investors. Since these markets are often poorly regulated, (for example, the ICO markets), they are still characterised by a number of unpleasant side-effects, sometimes involving fraud. Even so, shifting the investment paradigm changes the traditional access route to investing and also to the concentration of capital. And it’s here that the clash of jurisdictions and regulators for this new investment capital begins. There are already those who accept this new paradigm (for example, Japan), and those who won’t accept it (while it hasn’t outlawed Bitcoin, China has made trading or owning bitcoin a real challenge for its citizens — and Bitcoin is banned for banking institutions). The winner is going to be whoever can set up a framework that works for decentralised projects, which would then attract a ‘new wave of investment capital’ to their jurisdiction – that would really impact the future prosperity of a nation.
KATE GOLDFINCH, Editor at The Fintech Times