With all the security breaches hitting the headlines, consumers are questioning the integrity of their data and just as importantly, the companies they are trusting with their financial information and e-commerce buys. It suddenly seems more urgent than ever to plunge into the state of digital currency – especially if your business revolves around important monetary transactions. I admit to being a novice on this topic. After a somewhat deep dive, I’ve assembled a beginner’s guide to the digital currency rocket ship which is already on an intergallatic trajectory. The guiding thing to remember is digital currency is ”not about money, it’s about function” and what it can do for your business and for you personally. Terminology and platforms help determine what you and your company might need to understand within today’s digital landscape or where you might want to invest. Here we go. Grab a cup of Joe to help digest this.
1. Bitcoin Versus Blockchain
What is the difference between Bitcoin and Blockchain? Quite simply, CNN Money defines Bitcoin “as a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made with no middle men – meaning, no banks! There are no transaction fees and no need to give your real name.”
One small technicality. That isn’t strictly true – if you pay no fee, the miners will not confirm your transaction when the next block is mined, and the Bitcoin transaction will get stuck or left pending, perhaps indefinitely. You can pay a nominal fee to get the transaction through, or a higher fee to get it through quicker. The recommended fee depends on the byte size of your transaction and how congested the network is. This has been a big problem for Bitcoin as it gets more congested plus blocks get harder to mine, the fees have been increasing. This has now culminated in the recent fork of the network and launch of Bitcoin cash. It’s one of the major reasons for the existence of other cryptocurrencies such as Litecoin. The impact is the need to be cognizant of fees when entering the digital marketplace.
All of this was elevated and taken one step further with Blockchain technology (which is the underlying system in which Bitcoin is founded). According to Goldman Sachs, Blockchain “combines the openness of the internet with the security of cryptography to give everyone a faster, safer way to verify key information and establish trust.”
Interestingly, “Blockchain was originally developed as part of the digital currency Bitcoin. But the two are not the same. Blockchain can support a wide range of applications, and it’s already being used for peer-to-peer payment services, supply chain tracking and more.” It keeps a record of transactions, stores information making it virtually impossible to add, move or alter data. It allows for decentralized transaction(s) and puts them into blocks. It’s disruptive in terms of eliminating the middleman, has the ability to revolutionize everything through distributed ledger technology, and radically speed up transaction time. The applications are endless.
2. Zcash and Others.
The next evolution in the digital currency world. It’s a decentralized and open-source cryptocurrency that provides strong privacy protections. True anonymity is one of the major benefits of zcash vs. bitcoin. Zcash describes themselves with a comparison. “Bitcoin and most cryptocurrencies expose your entire payment history to the public. Zcash is the first open, permissionless cryptocurrency that can fully protect the privacy of transactions using zero-knowledge cryptography.” The way it works is shielded transactions hide the sender, recipient, and value on the blockchain. It’s literally the promise of decentralization with the benefit of privacy. According to a podcast on Radiolab entitled “Ceremony” (which is literally about a secret “ceremony” that actually happened), it is being billed as better blockchain technology– a secret password that was saved in a very secret “Ceremony.” Here’s the wizard or James Bond element. It was an event where 6 people participated in the setup of the genesis Zcash block, each performing cryptographic computations to create a key that had to be prevented from ever being seen – we just have to trust that the ceremony could not have been compromised and that the master key was destroyed afterwards. That’s exactly what happened. Some describe it as ‘security theater’ which is why it’s a trust-based protocol – with Zcash based on having to trust these 6 people at the ceremony.
More importantly, all of this has unleashed a massive techno race to develop all kinds of blockchain and cryptocurrencies that we’ll all be using in the very near future as they begin to play a massive role in the trade and ecommerce worlds. Why? Because consumers are ultimately going to drive the demand for these products for everything from cyber security products to a massive need for privacy. Companies know they need to respond now. Just offering more payment options and security with online checkout lowers abandoned cart rates and drives online sales up. More crypto options, equal transactiona,l and sales growth equal greater profits. We all want that.
3. Wait. There’s More.
Just to make things a bit more confusing, there is another new platform. Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. According to Block Geeks “Bitcoin offers one particular application of blockchain technology, a peer to peer electronic cash system that enables online Bitcoin payments. While the Bitcoin blockchain is used to track ownership of digital currency (bitcoins), the Ethereum blockchain focuses on running the programming code of any decentralized application. That’s critical. In layman’s terms, it’s a type of crypto token that fuels the network and is also used by application developers to pay for transaction fees and services on the Ethereum network. That’s why this platform is important to the developer community, and if you’re a skilled developer or venture capitalist, this is an emerging industry that might reap major financial rewards with right investment. This applies to everything from applications in new areas such as supply chain, media, entertainment, and advertising.
It’s important to understand that applications that run on this network can also have their own tokens, or “tokenized digital assets”, to create incentivized platforms; wherein the owners of the token use that asset to interact with and utilize the platform itself. This is how a lot of startups are going the route of running an “ICO” (Initial Coin Offering) to fundraise by doing a pre-sale on tokens. The investors are then a bit like shareholders in that company, who can keep, use, or exchange the tokens for other currencies. “Ether” is the token which fuels the Ethereum network.
Bottom line. Whether you’re an entrepreneur, small business owner, corporate executive, consumer, investor, it’s time to start forcing yourself, on a more frequent basis, to ask what challenges your business is facing on the consumer and merchant digital currency and cyber security fronts? What are the opportunities? How do these developing currencies and platforms effect my business? To get you started on your journey, check out the insightful and highly amusing documentary Banking on Bitcoin on Netflix, be industrious and sign up for a State of Digital Money conference to learn about how to use these technologies, and check out the highly informative Goldman Sachs report on Blockchain technology. Most of all, just get started, it’s a space race you don’t want to lose; and now that I have taken the plunge, I am not so intimidated by it all.
Finally, if you made it to the end of this article, you are officially a newly minted digital currency geek.