It has been very popular to discuss how bitcoin is going to change the remittance industry or that FIs will embrace block chain to revolutionize their business. But a recent survey by Deloitte indicated the 39% of senior executives at large companies have no idea what blockchain is, let alone how to utilize it in their business. And many people use BitCoin and blockchain interchangeably.
So here is a short overview to introduce you to these terms that will at least get you through you next strategy meeting with IT.
What is Bitcoin?
Bitcoin is an open source digital currency that is peer to peer focused. What exactly does that mean? With Bitcoin, provides a unit of value that has no government or central figure controlling things like interest rates or inflation. It is meant to gIve the “people" control over their currency. Bitcoin transactions can’t be reversed, so users can receive payments without having to worry about chargebacks and the fees associated with them that would would encounter in credit or debit transactions. At the same time, this feature means that you do not have the protections the payment networks like Visa and MasterCard provide. Be careful with your coins; if you lose them, you can’t get them back. Because Bitcoin is peer to peer, fees for transactions are extremely minimal or even free.
Bitcoin is the antithesis to institutions like the Federal Reserve, There will never be a time when they “run the printing presses” and flood the market with new currency. Only 21 million bitcoins are ever going to exist. There are no replacements, so lost coins are gone forever, making the supply even more scarce. This means that bitcoins will actually increase in value over time, unlike fiat currency that lose more and more value every year. Even so, Bitcoin has proved very volatile since it’s inception with valuation swings of several hundred dollars.
Bitcoin is actually a cryptocurrency, and while it is the most well known, it is by no means the only one. Many fail to realize that there are actually hundreds, if not thousands, of cryptocurrencies out there – and some of these are gaining too much traction on the market to ignore. Now let’s not get side tracked with a new technology term like cryptocurrency. At it’s core, it is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. This definition applies to Bitcoin or any of it’s competitors like BitCrystals, Dash or Ripple.
What is Blockchain?
Arguably more important than Bitcoin or any cryptocurrency is the blockchain. The blockchain is the public ledger for the cryptocurrency, and keeps track of every transaction made. This is publicly available and anyone can view it.
Blockchain technology is still being explored by both software developers and entrepreneurs looking to build on the protocol and establish new products and services. Blockchain technology has the ability to shape the financial industry going forward and will pave the way for new applications which empower individual users. This is what excites executives across multiple industries.
Today, the definition of a blockchain is open to various interpretations depending on the industry. Some people in the field actually eliminate the role of cryptocurrency They focus on the use of these chains by themselves for process improvement purposes.
A prime example is the banking industry. FI technology leaders have developed their own definition of a blockchain, one that’s also suitable for enterprises generally. They see it as the catalyst for an unprecedented process reengineering opportunity. A tool that can be used to reduce costs and increase efficiencies for the financial institutions’ administrative processes permanently. Many see core blockchain technology as the basis for immutable, shared, encrypted transaction ledgers.
Great I’m more confused than before!
Well I hope that is not the case, but here is how I keep it straight in my mind.
Bitcoin and other cryptocurrencies are new payment systems utilizing digital money. They are powered by their users with no central authority or middlemen. So Bitcoin is a digital “coin” similar the medal coins in your pocket.
Blockchain is what holds the digital currency network together. It is simply a vast, distributed public ledger of accounts. It keeps track of every transaction ever made in the network. It is like the check register that you keep to track deposits and purchases in your checking account. And because it’s completely decentralized and open source, blockchain offers the promise of vast improvements over current systems.
If you still have questions or would like to discuss these topics in more detail, drop us a note. At PaymentExecutive.com we have a network of the top industry experts and we love connecting people to innovate in the payments space. firstname.lastname@example.org