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Blockchain is primarily a digital ledger, storing information of transactions electronically in a digital form and is strongly affected by supply and demand. Blockchain basically acts as a digital bank that has no higher power or control and is extremely secured digitally. "Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions."(Hayes 2022). Transactions on a blockchain are chained together digitally, making it so each transaction chains in chronological order as well as making it so each participant relies on each other rather than depending on a single person or group who may have control. Blockchain technology is an immutable ledger, in which the factor of decentralization plays a role in maintaining the security and fidelity of the blockchain as well. The transparency of blockchain helps make data and assets more secure, as well as makes it easier to share encrypted information. For public transactions, anyone could see any transaction they want to, yet it is extremely difficult to alter blocks that are already on the chain since they are driven by mathematical functions or algorithms. Private transactions can be untraceable and have a degree of anonymity because of hash codes and wallets that protect user data.
Ajmera, A., Prophix, & Simon, G. (2018, April 10). How will blockchain impact accounting and finance? Prophix. Retrieved February 26, 2022, from https://blog.prophix.com/innovation-series-blockchain
Fast Facts About Blockchain
Usman, M. (2021, February 22). Blockchain & Bitcoin: Amazing facts you might have missed. CitrusBits. Retrieved March 23, 2022, from https://citrusbits.com/blockchain-bitcoin-amazing-facts-and-stats
The market of cryptocurrencies that use the blockchain has increased with an annual growth rate of 68.4% (Muntasir 2022)
Only 40 million people are taking advantage of the blockchain currently, which makes up 0.5% of the world's population (Muntasir 2022)
90% of U.S. & European banks/ financial institutions are investing in blockchain technology (Muntasir 2022)
Corporations that partake in crypto exchange and crypto mining are becoming successful. For example, Coinbase, an exchange platform, is worth $8 billion. (Muntasir 2022)
More than 20 countries are researching and investing in blockchain technology. For example, Tunisia has a blockchain-backed currency. (Muntasir 2022)
The Issues with Blockchain
In the article by Adam Hayes named "Blockchain Explained", he provides an excellent visual that provides a list of pros and cons of the blockchain. I specifically want to highlight the cons since this list sheds light on the most prevalent issues with the blockchain. First, the cost of mining(producing) or purchasing cryptocurrencies like Bitcoin is very expensive. Mining requires a lot of power as well as expensive equipment, processing Bitcoin could cost nearly $70,000. Second, there is a low amount of transactions, due to the cost and the fact that there is a lack of participants in the blockchain market (0.5% of the population). Third, cryptocurrencies have a history of hacking or fraud as well as being used in illicit activities, such as purchases on the dark web for instance. Most importantly, Hayes mentions how regulation of the blockchain varies and remains uncertain. This makes corporations less likely to want to participate in the blockchain since it isn't regulated or backed as strongly as the US dollar.
Hayes, A. (2022, March 5). Blockchain explained. Investopedia. Retrieved March 23, 2022, from https://www.investopedia.com/terms/b/blockchain.asp#toc-pros-and-cons-of-blockchain
CB Insights. (2017, July 19). The march of Financial Services Giants into Bitcoin and blockchain startups in one chart. CB Insights Research. Retrieved February 26, 2022, from https://www.cbinsights.com/research/financial-services-corporate-blockchain-investments/
The Issue of Regulating the Blockchain
The main issue is the regulation of blockchain, yet the security of the blockchain is one key reason why financial firms should consider partaking in the blockchain more often. There are examples that happen in everyday life such as robberies or bank account hacking, which is impossible when it comes to blockchain or cryptocurrency assets. For instance, the government prints money, making it very difficult to make a copy, yet it is still possible to make counterfeit money. Cryptocurrencies are mined, or verified through the blockchain network, this is blockchain's form of printing currency basically, and it is all digital and encrypted. Blockchain even could act as a bank and lend tokens to people on a loan.
As you can see from the diagram below, global finance executives were asked about blockchain and what is its biggest barrier from being adopted in the industry, 34% of them said uncertainty about regulation is the biggest reason. Blockchain is proven to be a more time and cost-efficient technology for applications in corporations, regulation is a big deal because the lack of regulation raises uncertainty about the volatility of the tokens being held. "Along with turning heads of businesses, financial institutions, and governments all around the world, the technology's decentralized nature is raising regulatory concerns and questions. Most notably, Facebook's proposed blockchain cryptocurrency, Libra, and its digital wallet, Calibra, have been entrenched in heated public battles with lawmakers ever since their announcement in June, 2019." (Insider Intelligience 2021). Once the government challenged the unsecured cryptocurrency, Libra, notable partners such as Paypal, eBay, Mastercard, Strip, and Visa all withdrew from Libra. The article from Intelligence Insider describes the state of regulation of blockchain as being similar to the laws that were upheld in the wild west. "And many legacy institutions are now finding themselves challenged by tech-savvy upstarts proposing blockchain-based solutions." (Intelligence Insider 2021). Countries have their own say in how to regulate blockchain in their jurisdiction, yet I believe that there should be a more central regulation overview committee in order to build integrity and trust as well as promote the use of the blockchain in the corporate environment.
Intelligence, I. (2021, January 27). How the laws & regulations affecting blockchain technology and cryptocurrencies, like Bitcoin, can impact its adoption. Business Insider. Retrieved March 23, 2022, from https://www.businessinsider.com/blockchain-cryptocurrency-regulations-us-global
References: Hayes, A. (2022, March 5). Blockchain explained. Investopedia. Retrieved March 23, 2022, from https://www.investopedia.com/terms/b/blockchain.asp#toc-pros-and-cons-of-blockchain
Muntasir, M. (2022, January 27). 7 crucial facts on Blockchain you must know now. Medium. Retrieved March 23, 2022, from https://medium.datadriveninvestor.com/7-crucial-facts-on-blockchain-you-must-know-now-a29341ff1f7d
Intelligence, I. (2021, January 27). How the laws & regulations affecting blockchain technology and cryptocurrencies, like Bitcoin, can impact its adoption. Business Insider. Retrieved March 23, 2022, from https://www.businessinsider.com/blockchain-cryptocurrency-regulations-us-global
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