Blockchain Emerged as the Tech to Underpin Bitcoin

Blockchain Emerged as the Tech to Underpin Bitcoin but IOT is Driving Huge Global Demand

12:55 23 May 2018

The internet of things (IOT) is a term to describe how our devices are all connected. Almost every device we own these days is Wi-Fi-enabled and this technology is also creeping into many of our household appliances and even our clothes and accessories.

While being permanently connected is useful and exciting, there are huge challenges for the industry to keep up with the demand and processing requirements these devices require. The majority of IOT systems are poorly built, they miss standards for authentication and authorisation and security protocols are minimal. The overriding problem is that current IOT systems rely on centralised, brokered communication models. Devices currently connect through servers that host huge processing and storage capacities, but connections between devices still have to transit through the internet. This model will fail to deliver the massive demand of the IOT traffic of the future. The expensive infrastructure and maintenance costs associated with centralised clouds, large server farms and network hardware mean that cloud servers will remain a bottleneck and point of failure that can disrupt entire networks. A solution to overcome this problem is a decentralised approach to IOT.

A Blockchain approach means using a distributed model to process the hundreds of billions of transactions between devices. This distributed ledger approach, or Blockchain technology, has emerged as an object of intense interest in the tech industry because it has the potential to scale down the high costs of installing and maintaining large centralised data centres and will distribute the storage, processing and protocol across the billions of devices that combine to be IOT networks. This will prevent failure of any single point in a network from bringing the entire network to a stop. It’s distributed structure, mean that there is no single entity storing the entire records. Rather, the participating nodes have a copy of the chain. It’s also ever-growing, data records are only added to the Blockchain, not deleted.

This technology is a solution to recording transactions or any digital process in a way that is designed to be more secure, transparent, highly resistant to discrete power failures and auditable. This efficiency means that it will undoubtedly disrupt many industries and enable new business models. The technology is young and changing very rapidly; organisations are scrambling to adopt the solutions knowing the costs savings and benefits to them are enormous.

Blockchain technology was created to be the concept or technology that underpinned the increasingly popular digital currency Bitcoin. Bitcoin is gaining traction among investors around the world but global interest in digital currencies accelerated at the end of 2017 when valuations rocketed. Bitcoin is at the centre of the cryptocurrency furore and has seen its value increase more than 12-fold during 2017.  XRP, a cryptocurrency created by the fintech company Ripple is the best performing cryptocurrency of 2017, registering astonishing 37,000 percent gains.

Bitcoin operates through a decentralised, global network and as such has no central registry of ownership, all issuers and owners remain anonymous but as more and more exchanges come online and regulation catches up with these currencies anonymity will be phased out and they will eventually become commonplace in the global financial system. Indeed, many financial service companies have hurried to roll out platforms and products to support the growing number of digital currencies.  According to the FT, as many as 16 banks and financial services companies have publicly linked to Ripple, most have not yet gone beyond testing, but some are already using Ripple’s systems for moving real currencies. Many financial services companies have shelved plans for further crypto-currency products until regulatory guidance becomes clearer but there is a growing contingent of traders cashing in on this new financial landscape, industry commentators have dubbed Bitcoin the ‘New Goldrush’ likening the unregulated sector to the Wild West. All digital currencies will remain volatile for the foreseeable future and the rapidly shifting prices hold opportunity for those interesting in mining, trading and using cryptocurrencies.

At the end of last year, there were over 200 digital currencies in the market, reaching a combined market capitalisation of $600 billion, and the money supply is increasing. However, conditions for mainstream adoption are still a long way in the future.