Banks and Blockchain Transactions – Which Is Better?

Many cryptocurrency critics believe that blockchain transactions are far too slow to be ever applicable for mass adoption within banking and financial institutions, failing to understand blockchain and cryptocurrency technology is still in its infancy.  In this post, we’re going to look at the pros and cons of each system and explore the future of payment systems.

Banks and payment systems look in some ways more efficient than blockchain transactions, but in many cases, they’re actually more involved. In fact, as soon as they’re being used to make cross-border payments and settlements, they start to reveal some flaws. They, too, can become slow, expensive, or worse – they can lock people out through no fault of their own, and for no apparent reason.

Bank-to-bank transactions through SWIFT network take three to five working days to reach its destination, which is extremely slow by cryptocurrency standards. In contrast, an average person with no connection to a bank or money transfer service can securely send and receive Bitcoin anywhere around the world with just a smartphone and a stable Internet connection in as short as ten to fifteen minutes without the risk of being censored out by the system.

Wire transfers cost somewhere between $10 to $30, plus 6% spread on foreign exchanges. In other words, if you’re sending $5,000 from Australia to Canada, you’ll pay as much as $330 on that single transaction. This doesn’t account for differences in rates from country to country (fees for sending money from US to Africa can be as high as 15%).

Bitcoin’s transaction fees peak at around $55 in December 2017 during a massive buying spree. But most of the time, sending Bitcoin to someone anywhere around the world will only cost a fraction of a dollar, to as high as $10 depending on priority and network load. And since it’s considered a borderless, global currency, users can forget about foreign exchange rates.

Companies like Abra have been using Bitcoin as a cheaper alternative to international settlement systems. Interestingly, certain banks like the ones in the Philippines allow remittances using Bitcoin, and recipients can take their pesos straight out of the ATM without an ATM card or a bank account.

Within the cryptocurrency ecosystem, on-chain and off-chain implementations can have a significant impact both on energy consumption and transaction throughputs. As a general rule, the more it shifts toward decentralization, the more challenges it needs to deal with scaling; but as more features become centralized, the more scalable it becomes. How these challenges will be overcome in the next couple of decades is anybody’s guess.

Some of the proposed on-chain solutions is the move towards proof-of-stake consensus algorithm (e.g., Ethereum Casper), and delegated proof-of-stake (e.g. EOS and Cardano). Off-chain solution include Lightning Network (e.g. Bitcoin), and side-chains. Improving the blockchain’s inner workings not only helps with efficiency, but also makes energy consumption more manageable.

 

Conclusion

Cryptocurrency might not be as nimble as people would expect from banks when it comes to local micro-transactions. However, we’ve seen some progress lately, with SegWit adoption being used in 40% of all Bitcoin transactions, enabling shorter confirmation times, significantly lower fees, and Lightning Network integration. Users can start experimenting with Lightning wallets in their beta version (Eclair, Zap, RawTX, etc.), and buy small stuff from online stores like the ones made by Blockstream specifically for that purpose.

Cryptocurrency will only get better as time goes by, and we’ve already seen some progress from greener solutions, to mining hardware, and software development. There’s no limit to the number of ways cryptocurrency can solve many of its challenges. All it takes is an open mind and a little bit of creativity.

 

The Top Cryptocurrency and Blockchain Projects in 2018

There’s been a change in the outlook for cryptocurrency during the past few months. People seldom talk about the markets or the price of Bitcoin. Volatility has been causing a lot of uncertainty, and mainstream adoption came to a virtual standstill.

Nonetheless, the cryptocurrency space showed remarkable resilience as blockchain projects continue to expand its borders with more lateral thinking and “out-of-the-box” blockchain solutions. We’ll explore some of their use-cases and find out whether these currencies and platforms are the next big thing.

 

Why People Invest in These Projects

Despite the recent lull in cryptocurrency trading and mining, blockchain projects and ICOs are very much in the business for 2018. Investors and tech companies remain optimistic about the future of the cryptocurrency space amidst tightening restrictions and negativity. In fact, according to Coindesk, the amount of money raised in ICOs in the first quarter alone exceeded the total amount last year.

Most ICOs and blockchain projects didn’t end up well for a lot of investors (more than 90% failed to deliver). However, there are a few examples like Binance and EOS which turned out as good investments. Binance became one of the leading cryptocurrency exchanges with a BNB market cap of over $1 billion – the second most valuable token on Coinmarketcap. EOS, on the other hand had a successful, albeit controversial mainnet launch, and is now a full-fledged decentralized application platform second only to Ethereum.

Smart investors consider the current state of affairs as a golden opportunity to hunt for new projects with the greatest potential, particularly in their early stages when they are mostly undervalued. Investing early on has the advantage of maximum gains with the least amount of exposure. For instance, a hundred dollars’ worth of investments at ten cents per token won’t break the bank if things go south. But if it turns out to be a real investment, gains will be exponential (e.g., BNB and EOS tokens are worth a hundred times more than their initial price in 2017)

 

 

Blockchain Projects to Watch for in 2018

Finding a good investment can be a real challenge since we’re dealing with dozens of new blockchain projects and ICOs every month. If you’re lucky enough, you might be able to land on some big winners from a list of projects. But before anything else, please bear in mind that this is not investment advice, and you are solely responsible for any gains or losses. That said, here are five of the most talked-about blockchain projects in 2018.

 

Zilliqa (ZIL). Launched in January, the project puts a lot of work in building a highly scalable decentralized platform using a method known as “sharding.” Unlike in Bitcoin, each node will be working in parallel within a group of nodes called “shard,” verifying a subset of all the transactions occurring at the same time (also called parallel processing). Sharding works perfectly in many centralized systems (Ultima Online, Google, etc.). However, it presents an immense technical challenge when applied on a decentralized environment. Ethereum has been working hard on it as part of its on-chain scaling solution in hopes of solving the security/scalability/decentralization trilemma. Zilliqa’s entry into the whole sharding scene threatens to steal the thunder from Ethereum by becoming the first to come up with a workable solution. Some estimates it to be around January 2019. Key features include:

  • faster transaction throughputs (speed improves as the network grows)
  • employs practical Byzantine Fault Tolerance as a consensus mechanism
  • reduced energy consumption (mining is spaced a hundred blocks apart)
  • maintains a decentralized network structure (a new shard is created for every 600 nodes)

Basic Attention Token (BAT). Cutting the middleman goes beyond peer-to-peer transactions to include decentralized, blockchain-based digital advertising in the form of an open-source, ad-free browser with its own currency. Brave Browser is one of today’s hottest Internet browsing software because it allows users to block ads and trackers completely free. In fact, as many as 3 million people have already been using Brave, becoming one of Google Play’s top ten in the Android browser category. The project is moving towards the creation a decentralized advertising platform using its own currency – Basic Attention Token – to incentivize both content creation and user attention. It works in some ways like Google Ads but in a more transparent and decentralized manner. The key advantages of BAT from an investor’s point of view include:

  • good potential for adoption (sold out BAT worth $35 million in 30 seconds)
  • strong support from the community (Brave browsing experience receive a lot of positive feedback from users)
  • a solid team of experienced developers (founded by no less than the co-founder of Mozilla, Firefox, and creator of JavaScript)

Kin (KIN). Canadian messaging app company Kik Interactive is making headway into cryptocurrency adoption with the launching of Kinecosystem. The company hopes to build a community of users and developers sharing resources, and making digital goods and services. However, unlike most blockchain startups with no real users, Kin’s integration into the Kik Messenger meant its value could potentially rise with over 300 million active users.  The company is now moving towards the next phase, inviting all developers and content creators in building the ecosystem for large KIN payouts. Gains will take time, but you might want to consider its advantages, namely:

  • KIN’s practical use-case as a digital currency on an existing application (Kik has been in use since 2010)
  • user base is mostly made up of digital-natives (teens, millennials, and active mobile users)
  • Kik’s emphasis on anonymity

DeepBrain Chain (DBC). Blockchain companies like DeepBrain Chain sees decentralization as the future of the AI industry. Development of AI applications use up a huge amount of computing power. DeepBrain Chain works by utilizing computational resources across millions of nodes on the neural network in building AI applications which are then published onto the blockchain. Nodes that successfully deploy mirror images will receive payouts in DBC. It plans on migrating out of NEO to its own mainnet in Q4, with its own consensus algorithm (proof of importance and delegated proof of stake). The goal is to become the deep learning machine for the AI industry. Successful adoption is achievable through:

  • growth in people’s interest in the AI industry
  • reduced computational cost of AI companies through resource-sharing
  • secure, decentralized method of storing AI information.

Wormhole. Bitcoin Cash might soon be able to run smart contracts through its proposed protocol layer known as Wormhole. Developers plan on forking the Omni Layer to create a platform for smart contracts on top of Bitcoin Cash. Much of it is still in the works as of this moment, but news is, they’re going to issue a token named “Wormhole Cash.” Investors and crypto-enthusiasts are keeping track of its progress since it is expected to have a very high demand upon release.

 

Conclusion

The cryptocurrency space has been constantly evolving even as the noise and the hype surrounding cryptocurrency have mostly faded. Cryptocurrency is here to stay, and we’ll be seeing more projects in the near future that will bridge the gap between the average user and blockchain technology.

The End of Currency as We Know It?

The growing optimism of financial institutions with blockchain technology has spurred a lot of interest within the cryptocurrency community. They’re now exploring the possibility of using cryptocurrency as a global currency, much like its real-world counterpart, but without the need for governmental intermediaries.

This, however, requires nothing short of a compromise since the technology used in cryptocurrencies, which were meant to cut off intermediaries, will now be used in the interest of banks and financial institutions they initially sought to eliminate.

 

Financial Institutions on the Use Blockchain Technology

The challenge with decentralized currency is the way which central banks create money. Cryptocurrency protocols which gave birth to Bitcoin, Ethereum, and Litecoin uses “proof of work”, hashpower/electricity to mine currencies until they reach a fixed limit. And, unlike central banks, anyone with adequate resource and hashpower can participate in the process of increasing money supply.

But not all cryptocurrencies follow this convention. Some currencies are neither mineable nor obtainable by any other means except through exchanges. Ripple (XRP), for instance, is one of those few currencies with such peculiar characteristics.

First, it has no need of miners to keep the system stable and secure, and does the exact opposite each time transactions are made: a specific unit of XRP is “destroyed” (around 0.00001 XRP or 10 “drops”) per transaction. Accordingly, this would discourage people from spamming the system. Maximum supply is programmed at 100 billion XRP, 55% of which is held in escrow.

Although “decentralized,” Ripple is backed by big institutions primarily Google (Google Ventures), and other venture capitalists such as Standard Chartered, Siam Commercial (SCB Digital Ventures), Japan’s SBI Holdings, CME Group, Seagate Technology, and Venture 51. The focus of blockchain adoption was not so much on creating a global decentralized currency envisioned by Bitcoin, but in making transactions “frictionless” and resistant to hacking.

Banks and financial institutions loved the concept and saw in Ripple the potential of using blockchain technology to make money transfers many times faster, a lot cheaper, and more secure than conventional banking and money service business. In fact, Ripple protocol is already supported by hundreds of banks and financial businesses across the globe, including American Express and SBI Holdings.

 

Use Cases of Blockchain Technology in Business

 

Banking & Money Service

Blockchain technology is the key to solving the age-old “Byzantine General’s Problem” when it comes to trust-based peer-to-peer transactions, one of which is the problem of “double spending.” In a traditional banking system, transactions between accounts and different banks have to be cleared to preclude the possibility of fraudulent transactions going through, especially now that most transactions involve digital cash and electronic money transfers over the Internet.

Although quite secure, they’re not essentially 100% hack-proof. The Bangladesh Bank Heist of February 2016 proves the vulnerability of a centralized method of transaction over the Internet (hackers employed the Dridex malware to send instructions to the Bangladesh Bank at the Federal Reserve Bank of New York through the SWIFT network.)

Banks and financial institutions are now looking to adopt a decentralized, consensual way of confirming transactions – one of the defining features of cryptocurrencies and distributed ledgers – to make cross-border, bank-to-bank transactions that are virtually hack-proof. To address the issue of congestion due to slow rate of confirmations, they’ve opted for cryptocurrency protocols which take mining out of the equation, i.e. pre-mined currencies.

 

Payment methods

The fact that tech giants, like Google, have invested in blockchain technology could be a strong indication that we are, indeed, looking into the future of cashless transactions. IBM also works with a pre-mined cryptocurrency, Stellar (XLM), to make cross-border payments more efficient and secure. Using this platform, they hope to eliminate the “costly, laborious, and error-prone process of making global payments.”

Microsoft retracted in their previous decision to stop accepting Bitcoin payments. Volatility and high transaction fees during peak hours can make Bitcoin payments troublesome for most businesses. But because of its high-yield potential for long-term investment, some businesses prefer Bitcoin over much stable but dormant pre-mined cryptocurrencies like Ripple and Stellar.

Several countries in North America, Europe, and Asia have brick-and-mortar businesses that accept Bitcoin payments with the same goal in mind. Since Bitcoin is regarded as a rare, highly-prized commodity, accepting them as payments is a viable way to make long-term cryptocurrency investments.

Some people went as far as using Bitcoin to acquire properties like one of Malaysia’s top entrepreneur who bought a piece of land for half a Bitcoin, and a property developer in the UK who sold two luxury homes for Bitcoin.

 

Internet Sites & Social Media

Blockchain technology can also have a positive impact on Internet sites and social media because of the massive traffic they generate. Having a cryptocurrency for users and subscribers seems to be the way forward. Facebook CEO, Mark Zuckerberg recognized the potential of having a cryptocurrency for its 2 billion users and subscribers.

Online stores and online services would also benefit from cryptocurrency payments for the very same reason banks and money service business are using it with the Ripple currency/protocol.

 

Implications of Institutionalizing Cryptocurrencies – Two Sides of the Story

Based on these observations, two possible scenarios are starting to emerge. Blockchain technology is undoubtedly the next generation of secure, peer-to-peer transactions. But as to the control of money supply and the ability of users to store value outside the realm of government regulation, the issue of decentralization could reach a stalemate between institutionalized cryptocurrency like Ripple, and a truly decentralized cryptocurrency like Bitcoin.

In such a case, we might be seeing two types of cryptocurrencies serving two different purposes – one as a fast and secure method of payment and money transfer (akin to fiat currency), and another as a store of value. Ripple has its merits as a payment method because of its liquidity, stability, and abundant supply. Bitcoin could also be used for the same purpose, but until it creates a permanent solution to scalability issues, transaction fees, and slow transactions, it might be best to keep it as a store of value or as an investment option.

Another possibility would be one of them prevails over the other. In the case of Ripple taking the lead as the dominant cryptocurrency, we might see a resurgence of centralized money in the form of a peer-to-peer currency based on trust. If Bitcoin, however, stays on top and manages to solve the issue, the other type of cryptocurrency could weaken or fall into disuse.

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