The world’s financial system is going through a lot of changes today. You must have felt its heat during the crashes of the crypto market, or through the promises of blockchain applications. It’s not new, and it all began almost a decade ago. Most of us were unaware of this ongoing revolution but, there are few, who looked under the hood, and became contributors to this world-changing technology.
In an interview, Andres Zunino, COO of ZirconTech, told that he and his team were looking for innovative ideas to invest in since 2013, and at the end of 2015, they finally found blockchain, as their worthy candidate. They wanted to build something on top of this emerging technology and chose the blockchain insurance application, which later got presented at a prestigious blockchain competition.
As you may have heard time to time, our current financial infrastructure is “centralized” and has a lot of problems and loopholes in it. There are people who abuse their power, systems that fail from time to time, countless scams, public frauds, and a lot more day-to-day hassles that consumers go through. What if we tell you that we can replace each and every segment of this huge system with blockchain technology, and you will never see such problems ever again!
We have a long way to go but, it is possible. Let us elaborate …
Blockchain Explained
What is Blockchain?
The applications of blockchain can be tricky and difficult to understand, but its underlying concept is pretty simple. According to CB Insights’ definition, “Blockchain technology offers a way for untrusted parties to reach consensus on a common digital history”.
You might ask, how can I trust this so-called common digital history? What if it has tampered with?
The reason people trust this common ledger is that it lives on the blockchain, which makes it unhackable. This is the beauty of this technology, where it shines the most. It provides immutability, transparency, and, of course, decentralization.
Nobody can tamper with its data or took over the control because blockchain’s architecture distributes “data and control” over a network of computers (also called nodes). Changing data on one or a few nodes will not affect the entire blockchain, and hence the modified or malicious transaction will not be approved, assuring the integrity of the data. This way, it protects its assets and the credibility of transactions happening all around the world.
In comparison to this decentralized mechanism, centralized storage systems are highly vulnerable because there is a single point of failure. One misconfigured security setting can collapse the databases and the entire system of control. Unlike blockchain, there is no way for us to trust that all the transactions are valid in a centralized infrastructure. We just have to believe that the transaction history is not yet hacked.
In addition to the inherent security feature that decentralization provides, blockchain uses cryptographic hashing techniques to protect the personal information on the network. Only the right person with a valid private key can access certain associated information, and no one else.
Example Usecase
Let’s take an example to understand how a typical currency transaction takes place:
Say there are two parties, Alice (the sender) and Bob (the receiver). Both, Alice and Bob, have their respective wallets, and each wallet has 2 keys, one public key, and one private key.
Supposing that initially both have zero funds in their wallets and Alice wants to send 1 ETH to Bob. To do so, she accesses her wallet using her private key and initializes the funds from, let’s say, the bank. To receive the payment, Bob provides his wallet’s public key to Alice to use as an address. Alice can now initiate the transfer and once the transaction is completed, updated funds get reflected in Bob’s wallet.
In this process, there is a small gas fee involved. That means, to transfer exactly 1 ETH to Bob, Alice needs to pay some extra fee on top of the principal amount. This fee is necessary to power the blockchain network. It serves as an incentive for the miners who use their computational power to validate transactions.
Mining and its Mechanism
Mining is the process of adding new coins into circulation and it is also important for the maintenance and development of the blockchain ledger. Miners provide their enormous computational power to solve an abstract mathematical equation, a cryptographic hash generated by each transaction. For every valid transaction that is solved, a new block is added to the blockchain. The hash value of this freshly generated block is dependent on the hash value of its previous block and the details of the transaction. This is called the “proof-of-work” mechanism, on which most of the famous cryptocurrencies operate, like Bitcoin, Ethereum, etc …
So as you can see, in the whole process, there is no centralized entity involved who is making the decisions. It is a self-sustaining system that can power the entire financial system of the planet.
Cryptocurrencies: The Bloodline of Decentralized Applications
According to Investopedia, a cryptocurrency, as the name suggests, is a cryptographically secured virtual/digital currency that is impossible to counterfeit or double spend. Usually, it is based on blockchain technology, which is simply a distributed ledger. No government or central authority has controls over it, and it is famous for its portability, transparency, and inflation resistance quality.
There are different types of cryptocurrencies present in the market, bitcoin being the most famous among all. Bitcoin is considered the father of all cryptocurrencies and every other variant comes under the category of “Altcoins”. Combinedly, the value of all cryptocurrencies adds up to 1.5 trillion dollars (USD), where BTC captures more than ⅗ of the market.
So let’s have a look at the top cryptocurrencies in the market:-
Bitcoin
Back in 2009, a mysterious person with the pseudonym, “Satoshi Nakamoto”, released a whitepaper containing a revolutionizing concept, which later resulted in the creation of Bitcoin. That whitepaper came with the promise of lower transaction fees than the traditional payment gateways which were controlled by the banks and huge private organizations. It offered a decentralized solution to the banking that nobody controls, an incorruptible infrastructure, that can power the global financial markets.
Consequently, Bitcoin became super popular and it triggered the development of hundreds of other cryptocurrencies. Today, it is often abbreviated as BTC in the trading markets and referred to as “digital gold”.
Ethereum
Like Bitcoin, it is also a blockchain platform, with the associated currency called Ether (or ETH). Currently, It is also working on the proof-of-work concept and they’re planning to shift it to a proof-of-stake mechanism in later 2022. The new version will be called Ethereum 2.0.
This blockchain is famous among decentralized application developers because it allows them to deploy smart contracts using the Solidity programming language. In terms of market value, it is around 266.83 Billion dollars in capital, right next to Bitcoin. Most of the tokens that you see on the exchanges are built on top of Ethereum, which powers a variety of DApps (Decentralized Applications) in the industry.
Stablecoins
Stablecoins is a category of cryptocurrency that aims to provide a stable market price on the exchanges. Unlike their other volatile counterparts, they are backed by some reserved assets, called collateralization, so their value is derived from an external reference. For example, a stablecoin can be pegged with the US Dollar, or with some commodity like gold.
Examples of Stablecoins include,
- Tether (USDT)
- Binance USD (BUSD)
- True USD (TUSD)
- Paxos Standard (PAX), also knows as PAX Gold
Altcoins
The term, Altcoin, refers to every cryptocurrency other than Bitcoin. It is a combination of 2 words, “Alt” and “Coin”. Stablecoins, utility tokens, security tokens, etc…, all come under this category.
Collectively, Altcoins captures around 2/5th of the total cryptocurrency market, with more than 9000 variants listed on the exchanges. As of March 2021, ETH and BNB had the largest market capitalization and they’re still growing. This term will most probably refer to the mining-based cryptocurrencies only, in the future, as we move towards other than proof-of-work-based technologies.
How to become a Blockchain Company?
Implementing Smart Contracts
Smart Contracts are the programs that are deployed on the blockchain network. They get executed when some predetermined conditions are met, for example, to automate a legal agreement or a financial transaction. Smart contracts are being popularly used in certain Voting Systems, Financial Services, Healthcare, etc …
Since they don’t need any intermediary, malpractices by third parties can be avoided and the whole process can be automated, saving a lot of business hours. Apart from that, all the documents are backed up automatically and the strong encryption of the blockchain algorithm takes care of the safety from any kind of infiltration.
ICOs: Initial Coin Offering
ICO is the new IPO, but with much less hassle.
The term ICO stands for “Initial Coin Offering”. It is similar to a real-world IPO (Initial Public Offering) of the company but, it happens entirely on a blockchain network. It is mainly used by technical people for raising funds for decentralized projects that have some potential in the future.
In the interview, Andres Zunino briefly pointed out his initial struggles as,
“We needed to dedicate a lot of effort to research, test, and develop competencies. We are happy with the point reached today thanks to the initial funding, the support from the Research and Innovation Agency in Uruguay, and all the dedicated effort”
Today, several startups are opting for ICOs for fundraising, instead of sharing a piece of their company with venture capitalists. Launching an ICO requires only two things: a spectacular announcement, and a digital campaign. In return for the money that is invested, the blockchain company provides utility tokens, that can be used in the future for using their decentralized service.
NFTs: Non-Fungible Tokens
NFT stands for Non-Fungible Token. In layman’s terms, non-fungibility means unique and irreplaceable. Unlike a normal currency, which is fungible, NFTs derive their value from their uniqueness and scarcity in the market.
All the currencies that you see in the market are fungible, including Bitcoin, Ether, etc… Theoretically, a 10 dollar bill in my pocket is equivalent to a 10 dollar bill in your pocket. This is called being fungible. But in the case of NFT, an original digital asset, say any artwork, cannot be replaced by a replica of the same, despite being exactly identical. NFTs provide a stamp of originality that cannot be corrupted.
You would not pay the same price for a Mona Lisa’s duplicate, as you would pay for the original one, however real it may look. Would you?
If you want an in-depth understanding of NFTs, we highly recommend this article.
Blockchain-based ID Protection
Today, blockchain technology has made Self-Sovereign Identity (SSI) possible. The ideology behind this is to give control to the individuals over the usage of their identity. This means you can register yourself, with the accurate details, on an unalterable decentralized database and use the generated unique identity hash to represent yourself online. In comparison to the centralized identity management systems, it is much more secure and reliable. This technology has the potential to completely change the way how we interact with different online services.
DeFi: Decentralized Finance
Decentralized Finance refers to a new financial system that is transparent and gives control to the user over his/her accounts. It provides you with the option to interact with the global markets using alternate currencies, instead of using government-issued fiat. As of now, tens of billions of dollars have been pumped into it via cryptocurrencies and it’s still growing. Anyone with an internet connection can use these services, and no one can deny access to them or choke your payments. No human errors are possible in these self-sustaining systems, which makes them much faster than their traditional counterparts.
Fact: A group of crypto-enthusiasts in Argentina used DeFi to escape inflation.
Associated risks with Crypto
Extremely Volatile Market Prices
If you have been crypto-trading for some time, then you know what we’re talking about. There is great instability in the prices of crypto due to its unregulated nature, which makes them extremely high-risk investment tools. You need to understand it deeply before jumping into the sea of crypto. Currently, the market sentiment for cryptocurrencies is very uncertain, which leads to sharp and unexpected price movements frequently.
To keep your portfolio in crypto, you need a strong risk appetite.
Vulnerable Smart Contracts
Smart contracts are self-executing, unalterable, autonomous programs that live on the blockchain networks. In the land of decentralized applications, smart contracts give birth to the philosophy, “Code is Law”. But, is it a good thing or a bad thing? If there is a vulnerability or loophole in a smart contract, then exploiting it is acceptable or not? Is it any different from the situation where a lawyer bends the law to suit his client? It’s an ongoing debate in the crypto community with no clear answer.
Smart contracts that power DApps are difficult, or sometimes impossible, to change once they’re deployed on the network. So if any mistakes are made, then you’ll have to deploy it again before it’s too late. That’s why rigorous testing of all the external functions of a contract is quintessential.
On 20th July 2016, the original Ethereum Blockchain Network was hacked due to a small vulnerability in a smart contract, which enabled hackers to siphon off almost 33% of the funds to a subsidiary account. To restore all the funds, the Ethereum community hard-forked a new branch and essentially had to split Ethereum into two. The original Ethereum continued as “Ethereum Classic”, whereas the new, unhacked, branch is now called “Ethereum”.
Lost Cold Storage
The term, Cold Storage, refers to the offline crypto wallet that is not connected or dependent on an internet connection. This protects it from all kinds of cyberattacks, hacks, and vulnerabilities that a normal online digital wallet possesses. But, its prime advantage is also its worst disadvantage. There have been several cases in the past, that you might’ve heard of, where the owner has lost large sums of crypto in his/her cold storage which now worth millions of dollars.
Government Restrictions
Without a doubt, we’re in the middle of a crypto-revolution and most of the countries acknowledge this fact. Today, governments all around the world are working on “regulating” the usage of cryptocurrencies and making and modifying constitutional laws for this new financial system. The pros of this technology outweigh the cons, hence, accepting this change is their best move.
But unfortunately, there are countries like Iran, Bolivia, North Macedonia, etc… that do not see the good side of implementing cryptocurrencies. They have restricted its usage and declared it illegal in their jurisdiction. Hence the development of Blockchain technology is difficult, if not impossible, in those parts of the world. And for blockchain-based companies, it presents a new challenge when they try to go global.
Why should you care about this transformation?
The world is transforming rapidly, faster than ever. Businesses and organizations are automating their transactions with blockchain networks, and rebuilding their services in a decentralized manner.
Andres describes the usage of blockchain technology as, “Dramatically simplifies financial processes, being a self-maintained network that substantially increases the security and efficiency of transactions.”
This dramatic shift towards crypto is due to the increase in public awareness. People now know about all the benefits that decentralization provides and why it’s necessary. If your business does not adapt according to this changing digital landscape, it will soon be ex-communicated and vanished.
In the interview also, Andres mentioned the increasing awareness over there as:
“In Uruguay, the blockchain movement really started this year [2017], because several people started to talk about it and because IBM is pushing a lot the IBM Hyperledger blockchain services.”
On the personal level, he and his team started contributing ever before that: Andres said, “it was Alejandro who started the Blockchain meetups in Montevideo in 2015”!
The rate of social adoption and technological advancements in this field are exponential and the future applications of blockchain are beyond our imagination. If implemented correctly, it provides you with impenetrable security and an inherent data backup system. You can leverage other DeFi services and present new and exciting features to your customers. You can sell utility tokens or security tokens that can help you in fundraising and power your platform.
With so many things going on, one thing is absolutely certain, that blockchain isn’t going anywhere soon. Either welcome it with open arms or be left out.
How to incorporate a blockchain-based solution into your existing infrastructure?
Adding new payment gateways for crypto
There are numerous crypto payment gateways out there, but BTC is still considered and accepted as the standard form of receiving payment. There are several bitcoin payment gateways in the market, like Coinbase, Coingate, CoinsBank, etc …, that provide you with all the integration facilities that you’ll need.
By adding these payment gateways, you can attract new customer segments that prefer cryptocurrencies over fiat. Also, if you happen to provide a sensitive service, where confidentiality is the key, then integration of such crypto payment gateways is the perfect choice for you.
Creating Smart contracts
We know, that for most businesses, automating everything with smart contracts is near impossible. It is also true that not everything can be automated through smart contracts. But, there are areas in any organization that can benefit from such automation. Like several legal aspects that follow a fixed standard procedure, or business logic that can be encoded for faster execution. To develop and deploy smart contracts within your blockchain company, coders and business experts must join their hands and work together.
In regards to the success of smart contracts, Andres believes in the power of Ethereum, since it is the most popular blockchain network where smart contracts are deployed.
“As long as the community continues to develop in Ethereum, it will be required ethers so that the smart contracts can be executed by the nodes, and therefore will have demand.”
Conclusion
Throughout the article, we explained blockchain, how it works, what are its application, what are the risks involved, and how you can incorporate blockchain solutions into your existing business infrastructure. We also saw that Andres and his team were talking about this revolution long before it became trendy in the eyes of the commonwealth. In the realm of technology, first movers always get the advantage, but it’s not too late. Now it’s up to you to use this information and create something valuable.
YOU CAN BE INTERESTED IN THESE ARTICLES TOO:
1. Benefits of Notarization with Blockchain
2. Smart Contracts with blockchain: Monax success story
3. Smart contracts with blockchain: Clause.io business case
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About ZirconTech: A trusted partner that helps organizations thrive in their digital transformations. Mobility, Internet of things, artificial intelligence, big data, cloud computing and blockchain technologies.