Blog by Alex Zelinsky, Chairman at VelvetPlatform and PayPugs
When discussing the evolution and importance of blockchain, certain claims often come up, but these do not give consideration to the increasing sophistication of the systems involved. These criticisms relate to the high number of cryptocurrencies available; its use in criminal activity; safety and trust issues of digital currencies and its take-up in mainstream financial services.
Criminal risks are minimal
Let’s deal with the first two; the number of blockchain and cryptocurrencies and criminal activities.
As of January 2021, there were more than 4 000 cryptocurrencies in existence but, as with all long-term investments, a get-rich-quick scheme that is ‘too good to be true’ should always be avoided. The strength of cryptocurrencies, such as Bitcoin, comes from years of good practice and preference must be given to sound financial institutions.
The majority of cryptocurrency is not used for criminal activity. According to an excerpt from Chainalysis’ 2021 report, in 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume (roughly $21.4 billion worth of transfers). In 2020, the criminal share of all cryptocurrency activity fell to just 0.34% ($10.0 billion in transaction volume).
At PayPugs, we have developed a global payment system based, using blockchain technology security features that protect our clients. We also enforce strict protocol as per the Financial Conduct Authority in the UK.
The driver behind cryptocurrencies and indeed, any digital currency is the blockchain technology that powers them. It is one of the most efficient solutions for businesses and is used by most of the world’s largest digital currencies.
A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. A block has a certain capacity and, when filled, is chained onto the previously filled block, forming a data chain. When a block is filled, it is set in stone and becomes a part of this timeline, so digital information is recorded and distributed but cannot be changed, hacked or edited. Because blockchain technology is decentralised and every transaction stored in blocks, it cannot be overspent or counterfeited.
We believe that businesses no longer need to be concerned that blockchain technology is not traditionally regulated, as blockchain security features provide them with the necessary peace of mind. By spreading its operations across a network of computers, blockchain allows blockchain technology to operate without the need for a central authority. This not only reduces risk but also eliminates many of the processing and transaction fees.
Blockchain security, means that businesses can have the benefits of cryptocurrency without exposing themselves to unnecessary risks. All they require is an internet connection and their transactions take place instantly. They are borderless and secure with minimal transaction costs.
Mainstream embracement of Blockchain
The initial scepticism of governments, organisations and financial institutions towards blockchain has lessened, as the world embraced a technology that offered security, the reduction of ‘middle-man’ costs and often speed.
This is demonstrated by the fact that investment banks, stock exchanges and central banks are beginning to work on their own blockchain-based solutions to keep up with this innovation.
According to Investopedia, Spanish based Banco Santander is working internally to develop blockchain-based solutions that will reduce its costs by $20 billion a year by the end of the decade. Barclays is viewing blockchain technology as ‘transformative’ and is experimenting with it both internally and via partnerships with start-ups. Worldwide, there were 400 banks & financial institutions using blockchain technology in 2020. These are all steps in the right direction and in the future could lead to bank accounts being represented on blockchain, making them more secure, accessible, and cheaper to maintain and alleviate the risk of bank runs.
Governments are now measuring systems with face recognition and blockchain wallet. Various governing bodies and agencies, including most recently a think-tank for the European Union, are making recommendations to adopt a decentralised digital identification system on a blockchain that can include some element of self-sovereign identity (SSI) whereby the individual retains some level of control over their own data.
So, the future’s looking bright for digital currencies. Sweden is due to become a cashless society by 2023, China is fast becoming one of the most cashless societies in the world, fuelled by the rise of dominant fintech platforms like Tencent’s WeChat Pay and Alibaba’s Alipay.