Recently, there are a lot of discussions surrounding “Bitcoin”, “blockchain” and “cryptocurrency”. These are closely related concepts but they are not synonymous. This article provides some basic definitions for these terms, and explains how they might disrupt traditional business practices and regulation in the next decade.

 

Basic Definitions

• “Blockchain” is the underlying technology that creates crypto-currency.

 

• “Crypto-currency” is digital money created by cryptography (ie: the art of writing and solving codes). It serves as a medium of exchange which uses encryption techniques to control the creation of monetary units and verify transactions.

 

• “Bitcoin” is the most popular form of crypto-currency using blockchain technology.

 

• “Mining” is the mechanism used to introduce new crypto-currency into the system. “Mining” also serves as a decentralised computational process to verify and add transaction records to the blockchain.

 

Blockchain: More than just a financial tool

Blockchain is an open, decentralised ledger of facts that records transactions between parties in a verifiable and permanent way, replicated across the entire peer-to-peer network.

This is how blockchain works:

 

1. When someone requests a transaction, the requested transaction is sent to a peer-to-peer network known as nodes.
2. The network of nodes validate the transactions using algorithms.
3. Once verified, the latest transaction will be added to the existing transactions to create a new block of data, secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data.
4. The new block is then added to blockchain as a permanent database, and the data cannot be altered retroactively without the alteration of all subsequent blocks.
5. All transactions completed are pseudonymous – which means all identifying information in the transaction is encrypted, and no personal information is shared.

 

How Blockchain might affect future businesses?

 

• Blockchain will potentially disrupt a wide variety of transactions including stocks, bonds and other financial assets because it eliminates the need to use a centralised third party (ie: banks, brokers) to verify transactions.

 

• Since Blockchain is programmable and is time-stamped, it paves way for “smart contracts” that can be partially or fully executed/ enforced without human interaction.

 

• Blockchain can serve as a secure way to validate almost anything of value, including voter authentication, health information and proof of intellectual property.

 

Opportunites posed by Bitcoin and other cryptocurrencies

 

• It is possible to send and receive Bitcoin or other cryptocurriencies anywhere in the world at any time. Crypto-currencies’ transactions are not affected by bank holidays, borders, remittance fees or other bureaucracy.

 

• Transactions using cryptocurrencies are secure, irreversible, and do not contain the parties’ sensitive or personal information. This protects consumers against identity theft, and also protects merchants from losses caused by fraud.

 

• The biggest selling point for Bitcoin or other cryptocurrencies is that they are open-sourced, fully transparent and decentralized. This means that anyone can access to the entire source code at any time to verify transactions and use it in real-time.

 

Challenges faced by Bitcoin and other cryptocurrencies

• Bitcoin does not have stability as a currency, as any news of government scrutiny or policy changes can significantly affect its prices overnight.

 

• Investors’ enthusiasm have driven significant price volatility, reducing Bitcoin’s utility as a universal medium of exchange. Many people do not use Bitcoin as a currency, rather as speculative investment to get easy money. Some commentators predicted that Bitcoin is a “bubble” which might eventually burst – when early investors have all cashed out and there are no more new investors to join, Bitcoin’s price will crash. Remaining investors who do no cash out in time might suffer great losses, since Bitcoin in itself has no intrinsic value or storehouse of value.

 

• Sovereign nations and their desire to maintain control of their respective currencies and money supplies might hinder the widespread use of Bitcoin.

 

• Without a centralised verifying authority to validate transactions, Bitcoin might be used for money laundering and drug dealing.

 

Cryptocurrency is currently unregulated in Malaysia. In October 2017, Bank Negara Malaysia announced that it will issue guidelines on the use of cryptocurrency by the end of 2017, addressing issues including the legality of Bitcoin, risks associated with money laundering and terrorism financing in Malaysia. Although blockchain technology is still relatively new to Malaysia, developed countries like the UK and US have already begun to adopt blockchain technology in transforming the banking and finance sector as well as in capital markets. No matter what is the context, there’s a huge chance that blockchain will affect your business in the future. The only question is when.