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Bitcoin vs. Blockchain: The State of The Cryptocurrency Ecosystem

News circulating around the cryptocurrency market and blockchain technology continues to make headlines daily. From the highs and lows of Bitcoin prices to innovative ways blockchain technology is being used to transform industries, the cryptocurrency ecosystem is seeing a clear divide between two decentralized worlds.

One of these worlds believes that digital currencies, like Bitcoin, will eventually replace traditional financial models and eliminate the need for central authorities such as banks. The other world views blockchain technology to be the next wave of digital transformation. Yet, while these groups are different, they are also very closely related.

For instance, someone recently asked if I think “blockchain” payments will become more common in the future. I responded by saying that blockchain is the technology that enables digital payments, such as Bitcoin, yet the blockchain itself is not a form of payment. Indeed, Bitcoin was the first cryptocurrency to introduce the application of blockchain technology, but the two remain separate elements.

The creation of Bitcoin allowed for digital payments to be sent between users without passing through a third party. Bitcoin transactions are connected to a user’s Bitcoin address, which is stored on its general ledger, known as the blockchain.

Blockchain technology ensures secure transactions when digital payments are processed. The blockchain is one of the most powerful innovations associated with Bitcoin, yet it can also be applied to a number of other industries. This technology enables transferring money, shares, and almost anything of value in a fully transparent manner, making the uses for it very broad when applied correctly.

Two Worlds Collide

While cryptocurrency and blockchain technology are closely related, the state of the cryptocurrency ecosystem is witnessing a clear divide between the two. This divide has also led some to wonder which world will survive in the future.

Let’s first consider the state of cryptocurrency. The idea of a digital currency came into being during the 2007-08 financial crisis, resulting in today’s cryptocurrency enthusiast losing trust in central banks and fiat money (i.e. USD). The financial crisis of 2007-08 sparked interest for the need of a limited-supply, digital currency that could be implemented worldwide. These digital currencies would be supported on blockchain-based networks to ensure security, trust, and transparency.

Following the financial crisis, Bitcoin was created in 2009 by a man, or a group of people, known as Satoshi Nakamoto, whose true identity remains a mystery to this day. Since the creation of Bitcoin, the cryptocurrency market has captured the interest of the entire world and has also given rise to blockchain technology.

Bitcoin gained Wall Street’s attention last year when investors saw a 2,000 percent surge over 12 months. Bitcoin prices finally hit a peak in December 2017, when the digital currency reached nearly $19,000 on CoinBase.

Other digital currencies, such as Ethereum and Ripple, also saw major leaps. While Bitcoin jumped more that 1,200 percent in 2017, Ripple surged by 35,000 percent in the same period. This means that $100 invested in Ripple in January 2017 would have been valued at around $35,000 at the start of this year.

Yet with success also comes loss. Bitcoin plunged more than 30 percent in mid-January, reaching below $10,000. Ethereum has also dropped more than 20 percent to below $1,000, and Ripple has fallen more than 30 percent to below $1, according to CoinMarketCap.

Additionally, Bitcoin and other digital currencies are now being viewed as “digital assets” rather than usable currency. This is due to the fact that many Bitcoin investors and holders are unable to use their shares to make everyday purchases or even to earn profits. The crypto market is also seeing a trend where people are buying cryptocurrencies simply because other people are investing in them, which is driving the price up and fueling the current investor frenzy.

While it’s hard to predict whether cryptocurrencies will become more widely adopted in the future, or if the market will even survive (many financial experts view the crypto-currency market to be a bubble that will burst soon), blockchain technology appears to have

great potential. According to IDC’s inaugural “Worldwide Semiannual Blockchain Spending Guide,” $945 million was spent on blockchain solutions in 2017. The report notes that this amount is expected to reach $2.1 billion during 2018. IDC expects blockchain spending to grow at a robust pace over the 2016-2021 forecast period with a five-year compound annual growth rate (CAGR) of 81.2 percent, reaching a total spending of $9.2 billion in 2021.

“Interest and investment in blockchain and distributed ledger technology (DLT) is accelerating as enterprises aggregate data into secure, sequential, and immutable blockchain ledgers, transforming their businesses and operations,” said Bill Fearnley, Jr., research director, Worldwide Blockchain Strategies.

The hype around blockchain technology started gaining traction when financial service sectors started applying blockchain-based solutions for real-world use. The banking industry’s growing interest in blockchain for fintech (financial technology) has now encouraged many bank-backed blockchain projects.

For example, The Hyperledger Fabric Project is one of the latest blockchain-based fintech projects. The Hyperledger Fabric Project is backed by IBM and serves as a trade finance platform aimed at international payments on the blockchain. The platform will run through the IBM Cloud, providing interconnectivity between all parties involved in a specific secure transaction. This project is designed to be highly scalable, allowing for multiple participants to easily integrate into the entire financial supply chain process through the blockchain.

While blockchain technology for fintech use cases is becoming more common, a number of different industries are also applying this technology to create more efficient and faster digital business processes.

For instance, blockchain technology is being used in the healthcare industry to create ledgers for healthcare treatments on electronic health records. A project created by the MIT Media Lab known as MedRec has developed a solution to use blockchain smart contracts to create a decentralized content management system for healthcare data across providers. MedRec uses smart contracts on the Ethereum blockchain to aggregate medical records into patient-provider relationships.

The gaming sector is also using blockchain technology to redefine its billion-dollar industry. The blockchain can help gamers easily interact and quickly transfer payments. Game Chain System (GCS) is a China-based gaming distribution platform that is using a blockchain-based network to inspire developers and reward gamers. GCS is the first of its kind and has seen unparalleled growth since implementing blockchain technology. The company recently launched their own GCS token that can be used as a means of exchange between other tokens and as an incentive within games. “Third party developers are rejoicing at the opportunity to grow their user base on the GCS blockchain-based platform,” said Lianwei Ling, founder, and CEO of GCS.

Survival of The Fittest

When all is said and done, the current state of the cryptocurrency ecosystem appears rather divided between an entirely new financial system and technological innovation.

Unfortunately, the cryptocurrency market remains unstable, leaving some experts and investors to believe that the market is a bubble on the verge of bursting.

Howard Wang of New York-based Convoy Investments LLC and Jeremy Grantham of GMO LLC have analyzed Bitcoin’s advance relative to past frenzies. The two concluded that it’s unsustainable. In a letter to investors sent out on January 3rd, Grantham expressed his concerns, saying, “Having no clear fundamental value and largely unregulated markets, coupled with a storyline conducive to delusions of grandeur, makes this, more than anything we can find in the history books, the very essence of a bubble.”

Yet other crypto enthusiasts believe Bitcoin to be the next best thing since gold, even if the digital currency functions more as an asset and less as “money.” David Drake, an early-stage equity expert, founder and chairman of LDJ Capital, and blockchain technology and cryptocurrency evangelist, said, “Bitcoin is considered to be the gold version of cryptocurrency and, as its volatility settles, it will be less of a transactional tool like it was used in the early days when Satoshi created it in 2009. Rather, Bitcoin will behave like a gold standard. You will see it as a safe haven for capital preservation. Its value will increase as the limitation on the volume of Bitcoin available is limited to 21 million. I expect market prices to range around $30,000 per Bitcoin by the end of this year.”

However, while the cryptocurrency market continues to fluctuate, blockchain technology is clearly on the rise and will most likely drive digital transformation for a number of industries. This is already becoming clear as more companies and technologists are investing heavily in blockchain-based technologies.

Chief Scientist and Co-Founder of the CyberMiles Foundation Dr. Michael Yuan is the author of the upcoming book Building Blockchain Apps. From a technology perspective, Dr. Yuan believes blockchain technology has great potential. During an exclusive interview he said, “As a result of the current cryptocurrency bubble, I believe that blockchain technology will gain traction and any technical problems associated with it be resolved within 6-12 months. After that, the next major challenge is beyond software engineering, but rather the design and implementation of new economic systems. Experimentation with the economic design is something that caused major consequences in human society before (think the communism experiment). But with blockchain ecosystems, we can now all become economic system designers and let the best design win.”

Considering this information, we are left to wonder which area of the cryptocurrency ecosystem will continue to survive and evolve. If I were to take a guess, I would say it’s safe to say that blockchain technology will reign supreme in the cryptocurrency ecosystem. However, only time will tell, as the state of the cryptocurrency ecosystem will continue to develop in one way or another.

By Rachel Wolfson

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July 30, 2018
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