“Great bubbles occur around stories that are going to happen,” said Mike Novogratz, a former hedge fund manager at Fortress Investment Group.While many potential investors are skeptical about the recent cryptocurrency bubble and concerned about fraudulent activities, they miss the point: blockchain is the future! Despite Bitcoin’s massive price drop, probably due to potential cryptocurrency regulation, trading bans, and technical flaws, the potential of blockchain technology should not be underrated.
A brief introduction to a blockchain and its practice
Blockchain functions as a distributed ledger technology (DLT) that first records all transactions taking place within its network and then distributes exact copies of those records to various institutions, countries, or communities. Using cryptography, records can’t be changed by anyone in the network; therefore, transactions are secure and accurate. Because of the decentralised architecture of blockchain, no one can possibly take control of it. As a result, blockchain has advantages over centralized systems as single-point failure is avoided and it is way more difficult for cyber-criminals to steal or alter the data stored as opposed to a centralized data centre.
This innovation offers a wide range of opportunities far beyond digital currencies. It has the power to revolutionize the way that ordinary business activities are carried out and way more! At the moment, IBM is developing blockchain projects in diverse industries including supply chain, government, healthcare, transportation, chemicals and petroleum, insurance, and more. So, what makes this technology a revolutionary step and a tempting opportunity for investors?
Revolution of contracts
Blockchain offers a great reduction of cost and complexity of carrying out day to day business operations. One of the most attractive blockchain applications is a smart contract — a computerized transaction protocol that executes the terms of a contract. This blockchain application allows to perform transactions of money, shares, or property without an interaction of a third party. Imagine how cost efficiency of businesses would increase if most legal and transactional costs are eliminated? Also, consider the time saving: with greater capacity, more transactions can be processed, and smart contracts allow companies to reduce the time needed for excessive documentation because it is automatically documented, verified, and secured on the blockchain. Brokers, notaries, and agents are not required to execute transactions. What is more, smart contracts are reliable and both parties involved in a transaction have access to the exact same copy of the ledger, which cannot be altered by either of them. Therefore, there is a significantly lower risk of fraud as smart contracts are designed to satisfy contractual conditions: payment terms, confidentiality, and enforcement.
Financing a new business in less than 30 seconds?!
Anothing thing blockchain can facilitate is fundraising for new businesses. Nowadays, it is an extremely time consuming and stressful process for businesses. In order to offer stocks for the public (IPO), the company needs to spend a fortune on legal, accounting, and marketing costs. According to a PWC survey, 83% of Chief Financial Officers are estimated to spend more than $1 million on one-time costs associated with an IPO! Moreover, the overwhelming majority of businesses are not large enough to raise capital through IPOs. Blockchain offers an alternative that helps avoid intervention of venture capitalists and banks: an Initial Coin Offering (ICO). Banks are often reluctant to lend for medium sized businesses due to the insufficient collateral. As a result, the process of financing a business can be terribly sluggish. Conversely, anyone can participate in ICO’s. This means that a much wider range of investors are available and the speed of receiving funds is streamlined. Brave, a new web browser startup set up by the founder of Mozilla, raised $35 million in less than 30 seconds selling “Basic Attention Tokens!
Cryptography is the new security
It is very important to outline the innovative technical characteristics of this technology as it is one of the main reason why cryptocurrencies became mainstream, with a market capitalisation of approximately $430 billion at the time of writing this! The essential pieces are the cryptographic hash functions, which are used as a security measure to completely encrypt the whole blockchain, providing a higher level of security. These functions are cryptographic algorithms, which are used for public and private key generation, rely on integer factorization problems, which are hard to break with current computing power. The Equifax and Deloitte hacks signal how important it is to recognise vulnerabilities in the current security systems and consider further improvements. For example, JPMorgan is working on the implementation of zcash’s zero-knowledge security layer on its Quorum blockchain. Because zcash has increased anonymity, the cryptocurrency only provides information about the time at which transactions occurred.
Although this technology is new and many people are unaware of its working principles, the benefits allow businesses to increase their cost-efficiency and promote faster growth. Innovation is key for long-term success in business. Missing out on such a revolutionary technology is a huge risk and mistake.
Disclaimer: This article does not intend to provide investment advice. The companies mentioned are not currently or planning to raise funds via Slice Capital’s funding portal. Slice Capital does not view the companies mentioned as direct competitors to any of the issuers currently raising on Slice’s funding portal.