Blockchain - a new solution to cryptocurrencies

When bitcoin broke into public consciousness in 2013, it was the main topic of discussion. Three years later, the sentiment is against the virtual currency.

More than 40 banks including Barclays and JPMorgan Chase are part of the R3 consortium, which is working on ways to use the blockchain for money transfers, record keeping and other back-end functions. Nasdaq Inc. is already using the blockchain — with help from startup Chain.com - for trading securities in private companies. In January, the Australian Stock Exchange signed a contract with blockchain startup Digital Asset Holdings. But while blockchain is winning converts, digital currencies have had their ups and downs. In April, Russia said it’s planning to punish users of cryptocurrencies. The price of ether, a newer virtual currency, plunged after hackers hit a crowdsourced venture capital fund that relied on it. The bitcoin community has become increasingly split over software and governance issues, leading a number of former proponents to walk away. The price of bitcoin rose through the first half of 2016 in anticipation of a reduction in supply written into the currency's software. But the theft of $65 million worth of bitcoin from a Hong Kong-based exchange and a subsequent drop in the currency's value was a reminder of its many uncertainties.

Virtual currencies aren’t new — online fantasy games have long used them — but the development of a secure digital currency without a central issuer rightly turned heads. The person or people who created  the bitcoin system under the pseudonym Satoshi Nakamoto solved a problem central to any currency — how to control its issuance, i.e., prevent counterfeiting — and did it without relying on a government’s authority. The software  also solved one specific hurdle for digital money — how to stop users from spending the same unit of currency twice. It’s maintained by a network of bitcoin “miners” whose computers perform the calculations that validate each transaction, preventing double-spending. The miners earn a reward of newly issued bitcoin. The pace of creation is limited, and no more than 21 million bitcoins will ever be issued.

Since bitcoin first boomed, there’s been no shortage of critics to call its rise a bubble and to argue that the currency has no intrinsic value. But entrepreneurs in the field say that focusing on the price of bitcoin is missing the point — its value is as proof of concept for a new kind of payment system not reliant on third parties like governments, big banks or credit-card companies.  Promising applications of the blockchain system include moving money abroad, signing contracts, clearing complex financial transactions and as a medium for micro-payments in emerging countries. Others say blockchain advocates are hyping what amounts to no more than a new kind of database. Even some of the currency’s canniest boosters always said there was no guarantee that it would ever break into the monetary mainstream. As the bitcoin community has grown more divided,  some have grown more pessimistic. Mike Hearn, a former member of the core team that updates the bitcoin software, said in 2013 that the “most plausible outcome” was that bitcoin would become a niche currency. In January 2016, he called it an experiment that had failed.