The Bitcoin community is in the midst of a vicious civil war. At it’s core, it’s a battle over the vision for the cryptocurrency: whether it should solely be a store of value — like digital gold — or both a store of value and a means of exchange — like digital cash.
Bitcoin, the global cryptocurrency and digital payment system, came into existence in 2009, in the midst of the global financial crisis. It is the first decentralised digital currency as the system works without a central repository or a single administrator. The creation and adoption of the Bitcoin is largely a result of the power of its underlying decentralised ledger technology: blockchain technology.
The bitcoin blockchain is a public ledger that records all bitcoin transactions. The key innovative feature is that the ledger is immutable, or unchanging over time. The Economist called it a machine for creating trust, as it allows people without confidence in one another the ability to work together without a central authority. Once a transaction is written onto the blockchain, no one can change it — or, at least, it would be extremely difficult to do so.
But slow transactions and rising fees have ignited a divide within the bitcoin community. Add to this the rise of Bitcoin Cash — a rival, spin-off network. Some some the battle for to be the ‘true’ Bitcoin has just started.
With all this infighting, confusion and volatility, it is tempting to dismiss Bitcoin and the crypto space as nothing more than a dubious get-rich-quick scheme or speculative financial bubble. I argue that dismissing Bitcoin and cryptocurrencies outright means missing a great opportunity to harness this modern financial technology for its positive societal benefits.
Tool for better governance
The Harvard Business Review article, The Truth about Blockchain, describes blockchain as a foundational technology with the capability to create new foundations for our future economic and social systems.
The technology has the potential, for example, to enable governments to work smarter and more efficiently. By utilising the secure, distributed, and inexpensive database technology of blockchain, the government would be able to validate many types of redundant documentation in the public sector. Preserving trustworthy digital records could drastically reduce corruption, bureaucracy, and transaction costs in the economy, while making life easier for all citizens.
The technology could also empower civil society and create new financial incentives for public goods; for example, a public asset registry — like the open-source initiative started by the MIT Media Lab — could unlock affordable finance for small businesses and individuals, currently under-served by the financial system. A public asset registry could also record people’s claims and transfers of property rights to the bitcoin blockchain and give lenders confidence that, in the event of default, they can seize clean collateral without the fear of unknown competing claims arising.
“Smart contracts” may be the most transformative blockchain application so far. Contracts are at the heart of all economic and business organisations. Smart contracts would enable automated payments and transfer of currency, or other assets as negotiated, the instant conditions are met. These self-executing, tech-verified contracts could be used in venture capital funding, real estate transactions, banking and many more areas. The implications are fascinating.
Indeed, where and how blockchain technology can be used is largely an entrepreneurial question. The best uses for the technology have to be discovered through experimentation and by developing new, decentralised applications on top of existing and future blockchains. More importantly, the technology is a new protocol layer of the Internet and so, in line with the Internet’s development, it would require the collaboration of various actors in order for its full benefits to be realised.
Blockchain summit at IIT Delhi
While major shifts were happening in the bitcoin community, NITI Aayog — along with Proffer, a blockchain startup founded by graduates of MIT and Harvard — organised a blockchain summit and hackathon at IIT Delhi on November 10–13, 2017. The objective of the event was to explore how blockchain technology can enable a new digital infrastructure for India, improving efficiency, transparency, privacy and cost across all sectors.
Microsoft, IBM, Accel, Coinbase, and Amazon AWS sponsored the hackathon and offered over $17,000 in prizes to the top five blockchain-based applications that addressed problems in government infrastructure, finance, energy markets, supply chains, and decentralised Aadhaar identities. With all the brainpower in the room being put behind problem-solving using blockchain technology, we might see major positive implications in this space in the near future.
Yet challenges remain in realising the technology’s potential. For example, the lack of regulation around blockchain-based cryptocurrencies has created an environment of uncertainty for all players. The Reserve Bank of India has issued two press releases cautioning users and investors against the risks associated with bitcoin and other digital currencies, but it is yet to create a regulatory framework. Earlier this year, the Ministry of Finance established a ‘virtual currency committee’ tasked with proposing a framework for bitcoin and other digital currencies. The deputy governor of the RBI recently said that they were now working on regulatory policy.
As the Government deliberates over how to regulate the technology, it is important that it doesn’t completely stifle innovation through something like a complete ban on cryptocurrencies. India should not miss the great potential that blockchain and digital assets could deliver for the country by overly focusing on the risks and volatility currently associated with cryptocurrencies. By embracing this technology, the country could turn away from the old ladder of development and leapfrog into a modern, digital country built for the future.