The blockchain revolution?
Some experts consider blockchain technologies to be the new digital revolution, with the total market capitalisation of crypto-currencies reaching an all-time high of over USD$60bn in May.
Here at Grouptree, we’ve been watching the progress of this exciting new technology and exploring opportunities to ‘mine’ cryptocurrencies. We’re also excited to be exploring the use of blockchain to implement increased security and versioning controls in our software solution, framework8.
So what are cryptocurrencies?
Cryptocurrencies are virtual currencies. Unlike fiduciary currencies, their value cannot be controlled by a central bank and they cannot be printed or controlled by a government.
The best-known cryptocurrency is Bitcoin, which represents 41% of the market. Bitcoin was created in 2009 by an unknown person using the alias Satoshi Nakamoto.
The journey of Bitcoin has been extraordinary, but market analysts and commentators warn not to conflate its performance with the potential of all cryptocurrencies.
That said, it’s fun to think that if you purchased USD$100 of bitcoin at 0.003 cents in May 2010, your investment would have been worth a cool USD$72.9 million in May 2017.
This raises some questions… Is there still growth left in Bitcoin? And perhaps more importantly, what is the next Bitcoin?!
What is the blockchain?
The blockchain is a distributed, transparent, secure and fully decentralised database. This forms the basis of all transactions, whether for Bitcoins or any other cryptocurrency. The chain is a time-stamped, shared and public transaction log where all confirmed transactions are included, protected by the principles of cryptography.
Blockchain technology theoretically allows for any type of transaction, sometimes at three times less the price. Bitcoins, for examples, are not tied to any country’s infrastructure, or subject to any regulation (yet!).
The technology appears set to have a seismic impact on the global economy, as well as the financial services and technology industries – not least disrupting the traditional role of banks.
Companies and governments are also considering using blockchain technology for purposes other than digital money. For example, applications for the transfer of assets or executing ‘smart contracts’. Smart contracts enable the exchange of money, property, shares, or anything of value in a transparent, conflict-free way, while avoiding the services of a third party.
What is cryptocurrency mining?
When an amount is transferred in Bitcoin or another currency, the transaction is included in the blockchain and signed with a private key - providing mathematical proof of the issuer and preventing that transaction from being modified. When a transaction is issued, it must be "confirmed" by the "mining" process.
All cryptocurrencies are maintained by a community of cryptocurrency miners who are participating in the validation and processing of transactions.
The mining process is a distributed consensus system that allows confirmation of a transaction. This is done using computing power, for the most part via a graphics processor.
Once a transaction is transmitted, it is effective only when the transaction has been confirmed by the network.
It is currently standard for transactions to receive at least six confirmations from miners and, for each confirmation, the chances of it being hacked or compromised in any way decrease exponentially.
In order to be confirmed, the transaction is included in a block that meets very strict rules. A block is a record in a string that contains and confirms several pending transactions. Every 10 minutes, on average, a new block containing transactions is added to the chain of blocks by mining. This means that a transaction process can take up to 10 minutes to process and confirm.
At Grouptree we’re studying the investment opportunities that arise through cryptocurrency mining. Based on our continued analysis, we believe that cryptocurrencies offer a promising future if they can tackle and resolve a number of challenges.
Firstly, Bitcoin and other currencies currently have an inflationary trend and high volatility. In order to attain entrenched success, these currencies need to be widely used. In order to be adopted by the masses, they must be accepted by users who might not be immediately attracted to their technical complexity and unfamiliar characteristics.
Finally, all cryptocurrencies must face down the major problem of anonymity, mitigating risk around the facilitation of tax evasion and money laundering, without being hampered by excessive regulation.
By Daniel Poinsignon, Software Engineering & AI Development Intern, Grouptree