Bitcoin Bits: 18 March, 2016

The weekly roundup of especially interesting bitcoin-related posts:

Hype springs eternal – from The Economist

image via The Economist
image via The Economist

An excellent article from The Economist magazine that highlights the inflated hype of the blockchain-saves-the-banks mindset:

“It is easy to see why bankers get excited about distributed ledgers. Instead of having to keep track of their assets in separate databases, as financial firms do now, they can share just one. Trades can be settled almost instantly, without the need for lots of intermediaries. As a result, less capital is tied up during a transaction, reducing risk. Such ledgers also make it easier to comply with anti-money-laundering and other regulations, since they provide a record of all past transactions.”

… recognizing that the technology is not quite ready yet:

“Yet the path to the promised land won’t be an easy one. One stumbling block is what geeks call “scalability”: today’s distributed ledgers cannot handle huge numbers of transactions. Another is confidentiality: encryption techniques that allow distributed ledgers to work while keeping trading patterns, say, private are only now being developed.”

… but acknowledging that just because it doesn’t meet the over-inflated expectations stoked by the media, does not mean that it is not full of potential.

“Yet it would be wrong to conclude that the blockchain is no more than a fad. It is merely moving through the same hype cycle as other next-big-things have done before it: inflated expectations are followed by disillusionment before a technology eventually finds its place. Although it will take a while for distributed ledgers to rule the world, they are an idea, to paraphrase Victor Hugo, that will be hard to resist.”

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Why Latin American economies are turning to bitcoin – by Sonny Singh and Alberto Vega, for TechCrunch

Really, just reading the news every day sends the signal that bitcoin as a holder of value and as a form of payment is an attractive alternative to local currencies. Uganda shutting down mobile money for four days, central banks losing their ability to manipulate currencies, growing concern over the health of Greek banks… This article, by two executives of BitPay (a bitcoin payments company), points out the potential of bitcoin in Latin America, from crisis-ridden Brazil to bitcoin-friendly Argentina.

“While it may seem like an unlikely success, bitcoin‘s growth has a precedent in Latin America’s rapid Internet adoption. While the share of web users in Latin America is still small compared to that of developed countries, the region’s e-commerce volume has climbed to nearly $50 billion (~24 percent year-over-year growth). The region’s social media users almost quadruple its share of web browser users, showing how important mobile e-commerce and social networks are becoming for the general population.”

Yet, as with the rest of the world, there are barriers to adoption.

“Although bitcoin usage is growing rapidly in Latin America, it still faces several obstacles. E-commerce hasn’t yet had the same impact in Latin America as it has had in the larger markets of North America and Europe. While some Latin Americans distrust their own currencies, they’re not all ready to use bitcoin in day-to-day transactions or rely on it as a store of value.”

In summary, an interesting top-down look at bitcoin’s role in a regional economy, and the potential to avoid or perhaps mitigate future economic crises.

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How The Technology Behind Bitcoin Is Going To Change The Lives Of The Bottom Billion – by Ben Schiller, for FastCoExist

This article gives a great introduction to the concept of bitcoin, and an overview of the social good that it can do in the world.

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Bitcoin and Public Blockchains Will Power the Smart Contracts Revolution – by Chris DeRose, for Coindesk

The blockchain and the potential of smart contracts, which are “small bits of code attached to an asset, which determines where and how the underlying asset will perform based on events in the network”:

“But who needs this service? Why would someone seek an environment where such un-alterable settlement would offer any efficiency? Well, like all things blockchain, these features will find their efficiency through any agency that stands to gain from the regulatory benefits of not having custody of funds.

Or, better still, these features would offer efficiencies in the world of the underserviced, where custodians for these funds are either unavailable – or worse still, to be found amongst the company of problematic institutions without insurance or verified holdings.”

Right here is where the potential for the blockchain to change the way banks work is at its most interesting, in my opinion. If they can adapt their services to embrace the potential efficiency of not needing to hold funds in escrow, then they stand to be a strong part of tomorrow’s financial services sector.

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Have an inspiring weekend!

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