All That Hype!

Bitcoin, Cryptocurrency, Ethereum — you must have heard about these buzzwords. And maybe the stories of people making a quick fortune out of it, and why not — look at the market capitalization of so-called ‘Cryptocurrencies’ and how it has grown in the last year. Blockchain is the idea which drives them all.

“Every informed person needs to know about the Blockchain because it might be one of the world’s most important developments” — Leon Luow

Crypto Market Capitalization

History of Money

“What is money?”

Money is an entity which can be used in exchange for goods and services and there is a system to keep track of its ownership and transactions — who owns what, who has what, and who owes how much to whom. That’s all there is for the concept of money.

We need a trusted third-party entity such as a Central Bank of a country to keep track of money, to keep those transactions and deal with the conflicts, if applicable. But that trusted party i.e. the Government, comes with a cost in terms of efficiencies, potential for corruption, extra fees and so forth.

WHAT’S BITCOIN AND THE BLOCKCHAIN?

Bitcoin is the world’s first completely decentralized digital currency, also known as a cryptocurrency. Bitcoin introduced a technology called a blockchain, which is a peer-to-peer distributed ledger of timestamped transactions.

Before the invention of Bitcoin, ledgers had to be maintained by central authorities like banks, which kept a single authoritative copy of the ledger. This meant that users that relied on a ledger had to trust the central authority.

Bitcoin’s use of a blockchain eliminates the need for central authorities and the need to trust them. It does this by allowing each user of the system to maintain their own copy of the ledger and keeping all copies of the ledger verifiably synchronized through a consensus algorithm.

Bitcoin is designed to allow its users to hold, send, and receive money online, but distributed ledgers can be used to do much more, including clearing and settlement of digital asset trading, provisining of identity, and distributed computing — all without the need for central intermediaries.

HOW DOES POLICY AND REGULATION FIT IN?

Traditional ledgers have centralized ledger-keepers (like banks), so it’s clear who the responsible and regulated parties are. But because open and decentralized blockchains like Bitcoin have no central operators (just like the internet itself), figuring out who is regulated, if anyone, requires deeper analysis. And because traditional concepts like “custody of funds” take on new meaning given technologies like multi-sig, what the technology allows us to do has outpaced what the law has anticipated, so new policy thinking is in order.