Whether as part of its own evolution or in its ashes, its innovative heritage promises to be considerable.

A digital fabric offers the possibility of improving the reliability and efficiency of all types of transactions. These are, of course, Blockchains. According to its supporters, its transformative potential for transactions is comparable to the revolution that the Internet has brought about in information flows. Is it necessary to get on that train so as not to lose it or better to observe from a distance to see how its applications are decanted?

What Blockchains are about

The potential stems from the fact that it can document transactions with any asset: tangible (from land and another real estate to art objects); intangible (such as patents and other intellectual property); or in between (as in the case of digital images). And it also serves to track sequences of transactions and verify to which natural or legal person the asset belongs at any given time.

It is a digital ledger in which each block in the chain indisputably verifies the content of the previous one. In principle, you can get any transaction done very quickly, at a low cost, and documented in an auditable way. It is easy to imagine how Blockchains could, for example, transform the sale of real estate.

And for many private Blockchain companies (with limited access to members of their system) they could also offer a new way to control operations – from supplies to productive modules and income – and to build trust and reduce the vulnerability of traditional information systems. More complex applications can also incorporate smart contracts that reliably automate future transactions.

But it turns out that, for now, the most widespread applications of Blockchains (cryptocurrencies and non-tangible tokens used by collectors) are found in fundamentally speculative niches, with more bubble potential than stable mechanism; and that the promise of low costs does not seem to have become reality in almost any of the applications, while others have turned out to require enormous energy consumption.

Cryptocurrencies and NFTs

The reasons for being interested in cryptocurrencies range from the search (constructive or anarchic) ​​for a global alternative to national currencies to speculation and secrecy in financial transfers. Launched in 2009, Bitcoin was the pioneer currency and continues to be the most value-added currency, although it has been losing ground as the range of cryptocurrencies has expanded. The total value of the set of cryptocurrencies was 700 billion dollars at the beginning of 2018, of which Bitcoin represented 70%. At the peak of cryptocurrency valuation ($2.9 trillion in January 2022), Bitcoin represented 40%, and now that value-added has dropped, it still represents roughly the same percentage.

Scarcity is integral to the original design of Bitcoin and partly explains why its value has skyrocketed, reaching as high as $65,000 six months ago. But the uncertainties around its practical utility, its inordinate energy consumption, and the regulatory framework (many countries are considering how to fill the regulatory loophole that cryptocurrencies have been navigating) make the value of Bitcoin vulnerable and prone to big ups and downs. Currently, it is around $20,000.

The other widely used Blockchain application is that of NFT: digital assets with unique identification codes and with their property authenticated in a Blockchain-type ledger, which works on platforms such as Ethereum, inspired by the Bitcoin experience. The trading of NFTs – generally with cryptocurrencies – experienced a dramatic boom during 2021, both in quantity and value. Most of the transactions have been in art images (in the broadest sense of the term) and it has attracted collectors who have bid on some images to levels that go beyond even the notion of a bubble. The collection of the Bored Monkeys Yacht Club is one of the extreme examples: with a dozen images, each one was worth more than a million dollars (increasing its value 5,000 times in less than a year).

In short, regardless of how Bitcoin evolves – and even survives – it will have had a long-lasting effect on fintech innovation. Although many experts consider Blockchains an inept technology – or one with purely utopian merits – there are still people and institutions that are betting heavily on cryptocurrencies, NFTs, and other applications of what they consider to be a great idea. Whether as part of its own evolution or in its ashes, the innovative heritage of Blockchains promises to be considerable.

By Audy Castaneda

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