ICT Authentication Infrastructure: Blockchain vs. Crytocurrency
It is important to understand the difference between Cryptocurrency and the infrastructure that supports it.
For example, the most widely recognized cryptocurrency, Bitcoin, relies upon Blockchain, which is a form of digital infrastructure that supports a distributed ledger and digital authentication.
While Blockchain does not rely upon any central authority for authenticating, authorizing, and settling transactions, it provides the benefit of tracking and recording interactions/exchanges and preserving a historical digital ledger of all transactions.
Before discussing the differences and interdependencies between cryptocurrencies and cryptocurrency infrastructure, it is important to put into perspective a few important matters including money, traditional currency vs. cryptocurrency, and other areas.
What is Money?
A simple definition of money is that it is a Store of Value that may be divisible into recognizable units of exchange for commerce. There are some means of stored value that do not meet the definition of money, such as a building or piece of equipment. While clearly having value, a residential home is not easily divisible for exchange. In addition, the value of a home will often fluctuate too much to facilitate Value Stability.
In other words, money represents value that may be used to facilitate a means of exchange.
Many things were used in ancient times as money including rocks and other such things that small groups recognized. Many forms of money did not endure due to either value recognition problems or exchange problems.
One of the most enduring examples of money is gold and silver, which have very well-known scarcity levels. In other words, these metals are both elements of the periodic table (Au is Gold and Ag is silver) with widely recognized existing quantities of existing on earth in pure form (e.g. jewelry, coins, bars, etc.) and identifiable estimates of availability on earth (e.g. in-ground amounts that could be mined).
What is Financial Currency?
One simple definition of financial currency is that it represents a form of money in a given country.
Certain companies have Central Banks (such as the United States Federal Reserve, the Bank of England, the European Central Bank, and the Bank of Japan), which have authority to create currency at will. This is often referred to as “printing money”, which is a bit of a misnomer as there is actually much more currency in the form of digital representation (e.g. recorded in bank and investment accounts) than physical currency in the form of cash notes or coins.
Currency is both a Store of Value and a means of Exchange as it is recognizable, increasingly difficult to counterfeit in physical note form, a divisible into units that engender easy trade.
What is an Exchange Rate?
An Exchange Rate is the ratio between one currency and another.
This ratio allows one to determine how much currency one would obtain for converting currency from one country into the currency of another country. For example, one US Dollar currently equals 0.82 Euro.
Exchange rates between all currencies changes daily within the Foreign Exchange market.
What is Cryptocurrency?
By definition, a Cryptocurrency is one that relies upon encryption to verify authenticity of actors (e.g. payer and payee) and to verify source of funds and validity of transaction. One important example of cryptocurrency infrastructure is Blockchain, which represents a continuously growing list of records, called blocks, which are linked and secured using cryptography.
Most cryptocurrencies need not use Blockchain specifically and some use derivatives of it. For example, one cryptocurrency known as IOTA uses a different approach that it creators say uses a “tangle” that its creators say will make it much faster and more efficient to run.
What is Cryptocurrency Infrastructure?
As mentioned earlier, Blockchain is one example of Cryptocurrency Infrastructure.
There are other potential technologies, all of which are positioned provide authentication necessary to support very important functions other than cryptocurrency including:
- Proof of Ownership, Custody, etc.
- Process and Track Transactions (e.g. financial and non-financial)
- Tracking of assets (both tangible and intangible)
Cryptocurrency infrastructure may therefore be used for more than cryptocurrency and thus may be more generally referred to as belonging to the broader category of ICT Authentication Infrastructure (IAI).
There are a variety of industry efforts underway to support Blockchain and IAI in general such as the Linux Foundation Hyperledger project, an opensource initiative aimed at advancing cross-industry blockchain technologies.
What is the Future of Cryptocurrency?
Arguments in Favor of Cryptocurrencies
Many proponents of cryptocurrency will say that there is a bright future for it for many reasons, not the least of which is that there is finite number of “coins” for a given one such as Bitcoin. This is in contrast with traditional currencies issued by central banks, which theoretically can be “printed” to oblivion in terms of value (e.g. just as issuing new shares in a stock reduces the overall value of stock for a company, each new unit of currency printed dilutes the value of the overall currency incrementally).
The argument here is that it will be a sounder means of protecting value (e.g. it cannot be diluted as traditional currencies. However, it is important to note that one existing challenge with cryptocurrencies is that value (e.g. currency exchange value) has very wide volatility.
What is the Long-term Value of Cryptocurrencies?
Many started worth only pennies (or less) per “coin” to rise in value to tens of thousands of US dollars, fall thousands of dollars, and rise again.
Arguments against Cryptocurrencies
Cryptocurrency antagonists will say that if something is truly a currency, it must be recognizable, accepted by merchants, and facilitate commerce. Cryptocurrencies are becoming increasingly recognized as a store of value (or perhaps more accurately stated, a means of speculating to gain a fast and potentially large return on the sheer momentum of interest in them). However, cryptocurrencies have problems at present in terms of universal recognition, trust, and acceptance (e.g. not many merchants will accept them as payment).
In addition, transaction costs associated with making payment via cryptocurrencies are current quite high. This means that purchasing an automobile via cryptocurrency might make sense, but not purchasing a coffee.
Finally, there are the issues of taxation to consider. The Internal Revenue Service (IRS) recognizes cryptocurrency as an area in which a taxable gain may occur. For example, if one had purchased one Bitcoin for $100 USD, it appreciated to $13,000, and one exchanges Bitcoin into something else, it is a taxable event as soon as the Bitcoin is exchanged for US dollars or any other form of money. The same applies if one makes a direct exchange from Bitcoin into any asset or item, such as purchasing an automotive vehicle for $13K.
What is the Future of Authentication Infrastructure for Information and Communications Technology?
Rather than stating the question using the term “Cryptocurrency Infrastructure” or “Blockchain”, the term “Authentication Infrastructure” is used because ICT is not concerned (directly or completely) with cryptocurrency and there is more to authentication than Blockchain.
For example, the aforementioned IOTA is poised to provide support for many different types of Internet of Things (IoT) related transactions all with one common element: Authentication. While IOTA tokens can be used like any other cryptocurrency, the protocol was designed specifically for use on connected devices.
One of the important aspects of IOTA is that it is designed to provide a tamper-proof decentralized ledger. In this way, it is like Blockchain.
Another important part of IOTA to note is that the IOTA Foundation is planning to establish a “decentralized data marketplace” that will enable players to easily use the technology that will involve fee-less transactions between the owners of the data and anyone who wants to buy it.
One of the Big Problems with Cryptocurrencies at Present is High Transaction Costs
Mind Commerce sees the future of Authentication Infrastructure for ICT leveraging Blockchain and other technologies to support a variety of important areas including IoT.
For example, IOTA has recently partnered with Microsoft in an initiative that is designed to allow stakeholders to share and monetize their data in a secure way in a tamper-proof data marketplace via distributed ledger powered by the cryptocurrency.
Learn More about Blockchain and ICT Authentication Infrastructure
The Mind Commerce report, Blockchain Technology and Solutions: Market Outlook and Forecasts 2017 – 2022, examines the technology, leading companies, and solutions in the evolving Blockchain ecosystem.
The report evaluates current and anticipated use cases for Blockchain and assesses the market potential globally, regionally, and segmented by deployment type and industry vertical for the period 2017 to 2022.
Contact Mind Commerce for more information and/or to answer your questions about Blockchain and ICT Authentication Technology.