What is Blockchain and Why Does it Matter to my Business? Part 1 of 3

There have been a large number of reasons for common business owners to be skeptical about the growing cryptocurrency markets. Be it from the United States making it difficult via traditional banks to participate in cryptocurrency markets or downright illegal in the case of Initial Coin Offerings (more on this later). This can be very intimidating to those who have not been involved in cryptocurrency in the past as the seemingly insane gains that are being reported all over the world and get rich quick stories, seem to indicate that there is something happening here.

Being that we are focused on how SMEs and freelancers can utilize hybrid banking technologies moving forward, one of the biggest questions we are faced with is “what can the blockchain do for my small business?”

The answer here can be parsed into a few broad categories and to get the full benefits of using blockchain technology we will stick to the most basic use-cases of blockchain, Bitcoin, and other cryptocurrencies for your small business or freelance enterprise. In this three part series we will be looking at the way cryptocurrencies have developed in recent years, how the corporate world is utilizing blockchain technology, and finally how small businesses and freelancers can utilize blockchain to expand into the digital space.

What is cryptocurrency and how does it differ from traditional currency?

One of the things that we take for granted about today’s world is the way that money functions. To understand the basic underpinnings of cash itself we have to outline some basic terms.

First there is the basic governmental issued money. This is known in the cryptocurrency and investing world as Fiat currencies. Essentially it means is that one US dollar or Euro cannot be exchanged for a set amount of a commodity. This is in direct contrast to how monetary units used to be issued prior to 1971 backed by gold or another commodity. Instead the government(s) makes a commitment to back their state issued currency as a means for payment.

This is why we have things such as inflation which various institutions control through the printing of new funds and their release on to the markets. The government can either raise this rate or lower it depending on the needs of the current government and financial markets. There can be many issues that arise from this such as hyperinflation, or the printing of new money without regard for the economic impact, as seen in Zimbabwe or, more recently, in Venezuela.

While these examples may be kind of extreme, there are positives to having a government backed currency. It allows for regulatory bodies to be in control in a way that they couldn’t before. These governing bodies are able to regulate the amount of cash flow in this capacity either reduce or increase inflation.

This is a more simplistic view of the finance side of things, but to complete our gloss over of key terms we have to consider the difference between bank notes and digital money. Most people these days carry very little cash, as the banking system has made it easy to spend the numbers in ones account and transfer them to another’s account with the swipe of a card or click of a button. Digital money transactions are swiftly moving to overtake the usefulness of cash as the ever connected world allows us to send and receive money from all over with our smartphones or computers. It is not hard to imagine that 90% of all transactions in the United States are done in electronic funds.

Where does Cryptocurrency fit in to all of this?

Ever since 2009 there has been a fringe movement to use cryptographic proofs to take place of finance money. Some would say that this was inspired from the Mortgage Crisis in 2007 that caused big banks to be bailed out on a massive scale in the United States when tons of adjustable rate mortgages threw the housing market into shambles. This is alluded to in the first white paper for a cryptocurrency — written by a mysterious cryptographer with the pseudonym Satoshi Nakamoto. In this paper the author describes the first cryptocurrency based on proof-of-work and proceeds to support his project through the outlining of how these proofs are to be used to create the very first truly open monetary unit, which he dubbed Bitcoin. It wasn’t until a year later that BTC was able to have a monetary value and Bitcoins were openly traded on a market.

Blockchain Technology

Blockchain is the underpinning technology that cryptocurrency rides upon. Cryptocurrency is simply the first use case of blockchain technology. Many of the big bankers seem to like the idea of blockchain but not cryptocurrency. It can do many things from validating supply chains to assisting in human resource management. Largely at this point use cases are being proposed and implemented in every aspect of business and life.

But isn’t Bitcoin for Criminals?

True, Bitcoin really hit the media when the government brought down a large ring of drug traffickers from a marketplace on the deepweb called Silk Road. There, everything from drugs to cyanide to guns had a price put on it and was shipped happily through the mail. This really came to the public eye when the FBI took down the marketplace and the alleged head of the illicit bazaar was put in jail. With this, bitcoin was officially branded in the news as being a perfect medium for criminals.

The biggest concern as of recent years has been scams and Ponzi schemes. Because of the lack of reversibility of cryptocurrency transactions scammers have taken to the cryptocurrency space to steal peoples hard earned funds. This is what has drawn the SEC to make an announcement about ICOs in the recent months.

So what exactly does this all mean?

When Bitcoin trading began it was worth fractions of pennies, and as many readers know it is now worth thousands of dollars. The reason that this explosion has occurred are simple economics. It really comes down to supply and demand. In contrast to fiat money, Cryptocurrencies only have a set amount to be created through the proof-of-work ‘mining’ done by various computer processes. Once these are all dispersed there will be only that set amount available in the entire world. The set limit for the maximum amount of Bitcoin that will ever exist is 21 million Bitcoins. This is one of the reasons that current economists point to the earth shattering rise in 2017, because the scarcity of this digital asset became clear.

Because Bitcoin isn’t controlled by any government there is no way to print any more of it after the set amount is dispersed. This classifies bitcoin as a deflationary currency, which is set to gain value over time due to the limited nature of it. While there are many different cryptocurrencies they all have the same ramifications, that there is a currency that is backed by mathematical proofs. This is often portrayed as being in direct conflict with digital money as digital money are often seen as simply ‘vouchers’ for money, though thoroughly redeemable.

Bitcoin has also launched a global financial market. While this is not specifically stated, it has linked the globe to open up a world-wide economy which is unlike anything the world has ever seen.

Next Steps

In the coming weeks we will discuss the various cryptocurrencies outside of bitcoin and how these can be used in small business enterprises and how bigger businesses intend to use blockchain in the future.

For presale inquiries in the Monaize ICO please contact ico@monaize.com