What has been the impact in your country/region of increasingly popular cryptocurrencies such as Bitcoin? What are the greatest hurdles?
Popular cryptocurrencies such as Bitcoin have sucked up a vast amount of liquidity from people from all walks of life in Australia. Much of this liquidity is invested in Bitcoin because people either don’t understand or can’t evaluate the actual value of Bitcoin. The true value of Bitcoin should be evaluated against the accumulated value of all the goods and services that could be currently purchased with Bitcoin. In other words, how valuable is the Bitcoin ecosystem. It is definitely worth less than the market capitalization of all the Bitcoin currently out in the market.
The worrying effect of this “over-investment” is that it’s given people the wrong impression – that it’s a viable get-rich quick scheme based on a cool sounding tech innovation. The phrase “fear of missing out” or FOMO is driving the cryptocurrencies phenomenon. I believe the most interesting impact about this phenomenon is that it provides the Australian government and businesses a chance to observe this organic experiment about the viability of a decentralized system, that could be a prelude to the introduction of its own digital currencies and financial system.
For cryptocurrencies to become mainstream, we need a hybrid approach where blockchain could retain part of the decentralization, but be regulated. The greatest hurdles to implementing this are security and accountability. The current components making up the ecosystem of the cryptocurrencies have very little accountability other than to their own stakeholders. These components are not regulated as tightly as those in the financial system of a country and they are a risk for all stakeholders of cryptocurrencies.
Can blockchain, the technology underlying Bitcoin, serve other purposes? What are potential applications? How should it be regulated?
The blockchain has always been the main technology of interest and Bitcoins are simply incentives for miners to help keep the entire Blockchain system from being compromised. The most interesting and exciting application of the Blockchain will be for the enactment and enforcement of smart contracts that will be more economically efficient than our current contract system.
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce a contract. They allow credible transactions to occur without third parties e.g. lawyers. Smart contracts can vastly disrupt how businesses are being conducted and how society functions because of its dynamism (real time updates), its ability to handle sheer complexity, and its ability to handle dynamic permutations of contract fulfillments. Smart contracts based on the blockchain concept enforces accountability and equity for all parties involved in the contract. It gives each party more control over how they interact with others and how they are recognized (accountability) for the role they play in the fulfillment (partial or otherwise) of the contract and be remunerated accordingly. Smart contracts cannot be easily regulated by existing methods because of the three characteristics I have mentioned above. Automation through integration of machine learning and big data analytics will definitely have a role to play in how smart contracts are evaluated and regulated in the future.