Facebook’s recent launch of their new cryptocurrency, Libra, has made waves this month in the world of Blockchain and social media. This has brought blockchain back into the news and mainstream media. With the rise and fall of Bitcoin and Facebook’s newest addition, Libra on the blockchain scene, recent UoB economics graduate and Bristol Pound Volunteer Darius Ghadiali explains all.
Blockchain in a nutshell
Blockchain is a new concept involved in finance, distribution, logistics and trade, with its popularity skyrocketing as a decentralised information system. The data is stored in net of interlinking points, making it more secure and resistant to manipulation – there is no central hub that is vulnerable to an all-out attack. After the Playstation Network hacks in 2011 and Facebook’s link to the Cambridge Analytica scandal last year, digital users are more and more wary of the safety of their data. From its design, Blockchain has been dubbed “secure by design” and is coveted as being almost unhackable. Here we look into the main features and how cryptocurrencies (which use blockchain technology) compare as a serious alternative to the Pound Sterling.
Decentralisation – what is it? And why is it important?
Blockchain’s decentralised structure is a system of information stored in small amounts in several ‘blocks’. Each block interacts with all others when a new piece of information or transaction is made – this is where the concept of the “chain” comes from. This ensures that if one block were to become corrupt, the entire system would not be compromised because of that corrupted block not holding all of the information. The rest of the blockchain would remain in action, meaning that the system is highly secure.
This means that the damage done from hacking and corrupted information is minimised – providing the security and knowledge that private information stays private when using the service. Where traditional physical currencies can be stolen, used for blackmail and syphoned into dirty industries – the blockchain prevents this from occurring and keeps the user protected from dangerous activity.
Blockchain and cryptocurrencies:
Blockchain is used to mediate cryptocurrencies (digital and secure money) such as Bitcoin and Ethereum. The decentralised structure means that the validity of the cryptocurrency is backed up by an entire system of other blocks. The value of the currency is unable to be modified because it would require the entire system to support the change – and this is near impossible to do unless each and every block is modified.
Cryptocurrencies are used as a way to maintain freedom, keep information private and trade securely. Although in the early days cryptocurrencies were reserved for questionable activity on the dark net, they’ve become more and more accepted and are a legitimate form of currency traded for many above-board purposes. A study from 2007 conducted by members from the University of Sydney looking at bitcoin and criminal activity showed that “black e-commerce” – illegal activity driven by the use of cryptocurrencies has been on the rise when bitcoin was first launched. The study also found that, worldwide, an estimated quarter of users of cryptocurrencies are engaged with illegal activity, and that this criminal activity was estimated to be worth $76 billion in value. The study also showed that as Bitcoin became more popular as a mainstream alternative currency, the illegal activity associated with it has dropped. This is promising for future use of cryptocurrencies as a legitimate alternative form of currency.
Although Bitcoin is the poster-boy of cryptocurrencies, there now exists over 4,000 varieties of ‘altcoins’ (alternative cryptocurrencies) available to trade on the internet. Some of the most popular altcoins other than Bitcoin and Ethereum are: Litecoin, Zcash, Dash, Ripple and Monero. It’s possible to become an owner of cryptocurrencies from home, simply through buying them online in exchange for pounds on a crypto-exchange site.
Blockchain and politics – where is blockchain going and is it good for inequality?
As cryptocurrencies like Bitcoin aren’t as widely accepted as Pound Sterling, most of the offline vendors that are willing to accept the currency tend to be sole traders or small enterprises. This means by using Bitcoin, Ethereum or any other traded cryptocurrency, people are supporting their local businesses and helping the local economy thrive. With the new crypto-ATMs springing up around cities, there’s a good chance Bitcoin will begin to be accepted more like a tradeable currency in local shops, in exchange for professional services and in local pubs, cafes and cinemas. ‘The Best Supermarket’, located in Stokes Croft, has an ATM (called a Satoshi Point ATM, after the founder of Bitcoin) in their shop, where you can buy and sell Bitcoin using the ‘wallet’ number, which can be installed on your phone or laptop.
Where local currencies like Bristol Pound can work to prevent the transfer of money into offshore accounts or tax havens, cryptocurrencies don’t geographically restrict the flow of money, but instead ensure, just like local currencies, that the trade occurs with small and growing businesses.
Some supporters of local, decentralised economies are in favour of cryptocurrencies suggesting that they are the way forward for eliminating bureaucracy and ensuring transparency at the local level. Although there is no way to modify the blockchain information, it is possible to see the transaction amounts, the identities/usernames of the people involved and the date of the transaction. With the blockchain accounting, it may be possible to use the data in legal trials to tackle fraud, money laundering and other illegal economic activity using cryptocurrencies.
However, blockchain technology’s influence into the currency market has made some people anxious: anonymous buying and selling may not be seen when the government looks at the UK’s total money – this buying and selling may occur in sectors or industries that don’t support equality of income.
Cryptocurrencies still have the potential to be used to allow a lot of money going into the hands of those that are benefiting the most from the sales they’re used in. The privacy that comes with these currencies also enables the hiding of anti-social economic behaviour – where the crypto-money is going towards projects and investments that don’t necessarily promote society’s well-being in order to avoid triggering the public’s attention. In the UK, cryptocurrencies are taxed through personal income taxes, though HMRC hasn’t published information for corporation crypto-taxes. The government in time might begin to set up progressive income taxes on crypto-assets for corporations, which would signify a small victory in the fight for equality.
Blockchain is just the technology and therefore doesn’t come with a rulebook for its fair use. Although still in its early stages, it requires future involvement with local governments, the users themselves and national government to ensure that the technology is not being used for the benefit of a few at the expense of the many.
With Facebook’s launch of their own currency, the Libra, there are both concerns regarding individual users’ data privacy – Facebook’s lack of data security (having made many accounts vulnerable to hacking) has made them less trusted in the public eye than before. The introduction of the social media giant into the world of blockchain currencies is expected to affect the market values and usage of the other existing currencies.
The upside to Facebook’s Libra launch is that using the currency will avoid large transaction fees (though there is a small fee for its use), that setting up an account with them does not require you to have a bank account and that the currency’s value is tied to other big currencies like the pound, dollar and yen. This, following the bitcoin price crash of 2018, presents a potentially stable cryptocurrency that people can use relatively easily. Though Facebook’s reputation seems to be scarred through their past activity regarding data and their marketing techniques are said to be intrusive and manipulative, the launch of their currency is still yet to be judged.
The final word:
All in all, blockchain is a massive shake-up to the world of finance and distribution. There are new-found freedoms and security to how trade happens, and whilst in the short-term, it seems to be supporting local businesses and helping sole vendors using it for self-sustenance, there is still work to be done regarding the equitable use of the technology.