Digital currencies and block chain

22 May 2015

Most people have heard about Bitcoin during the last 3 years. Some people see it as a bubble and some others think it will not only change the whole finance world, but the whole world. There are other digital currencies too, but they are not as well known as Bitcoin. An important part of the digital currency ecosystem is block chain. And maybe block chain is actually more important than Bitcoin or any digital currency alone.

Governments have traditionally controlled money. This control is an important part of the toolset - how a government can influence the economy, exchange rates and businesses. The Euro is an example of how difficult it is to get several countries to share a currency and in that way give away control.

Some people see that a common more distributed currency could put countries and their businesses in more equal positions. And maybe it could even help to avoid wars and smaller conflicts, when all countries are tied to each other through currency. It could also help to avoid some speculation and currency exchange loses.

It is too early to say, when and which one will be the digital currency that really changes our daily life. Sooner or later digital currency will come. It is hard to say if they are totally new currencies, or if they are based on the existing currencies. And will there be one or many digital currencies, time will show.

At the same time some technologies that have been developed for digital currencies can have a bigger and earlier influence than the actual currencies themselves. One of those technologies is block chain. It can have an impact on currencies, digital wallets, banking system and many other digital transactions.

Wikipedia defines block chain in the following way “The block chain is a public ledger that records bitcoin transactions. A novel solution accomplishes this without any trusted central authority: maintenance of the block chain is performed by a network of communicating nodes running bitcoin software.” Block chain is a distributed database that records transactions and ownerships of Bitcoins. For example, banks are not needed to author and record these ownerships and transactions.

Block chain is not only tied to Bitcoin. It or similar models can basically used to record all kind of digital ownerships and transactions. Block chain still has several issues to be solved, like how it really works with huge databases, if all digital transactions would be in those databases. But its de-centralized model can even question the role of banks in many financial services. And it can also offer a new way to handle, for example, digital investing and lending services, as well as different kinds of digital agreement processing and deposit.

Several companies are applying new back office methods to both novel and traditional infrastructure. For example Crowd Valley, a US fundraising and securities market backend and API company, builds out new back office infrastructure for traditional and digital currencies alike and record investing transactions and escrow. And several other digital economy companies plan other models to utilize concept.

We are still in the early days of digital currencies and a really global digital financial market. Bitcoin is one important case now to build services for this digital economy. Often it is so that the first candidate is not the long term winner, but we don’t know this yet. We can however be sure of a more global digital finance market, banking services and digital transaction solutions are coming. Block chain type solutions are an important part to enable those new services.

Everyone who wants to be a part of this development should start to investigate and develop these services now. They will have impact on many mobile services too. We are still in a phase that we try to use old world components in the new digital world, but sooner or later native and more effective digital solutions will replace the old solutions and models. And it can be hard time to those who only believed in the old solutions.

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