Bitcoining IT

Cryptocurrencies may seem like a futuristic concept reserved for a technology underworld, says tech writer Sooraj Shah. But they’re rapidly growing in influence - and could be a conventional way to make payments in the not-too-distant future. If the barriers can be overcome.

As David Bruno, head of innovation at a large Swiss bank explains: “I don’t know a bank that isn’t trying to seriously implement cryptocurrencies”.

Cryptocurrencies are essentially digital currencies, formed not of notes and coins, but lines of code. Unlike all other currencies on earth, these aren’t controlled by a central authority such as a bank – and so they don’t have to adhere to complicated regulations. But they’re also not protected in the same way as the dollar or the pound.

It’s been suggested there are more than 700 cryptocurrencies in circulation today, with the most popular 12 or 13 bringing in a market capitalisation value of over $10m. The best known of these virtual currencies is Bitcoin – and it has been thriving over the course of 2016; at the time of writing, one Bitcoin is worth £597.73. The technology behind Bitcoin is called a blockchain, a distributed ledger of transactions maintained by a peer-to-peer network, or more broadly, a programmable platform that supports various guises of value exchange.

Bitcoin competitors include Ethereum, Tendermint, Eris, R3 and Blockstream, with the former being the second most popular cryptocurrency – but unlike Bitcoin, its rival Ether is used for transactions within apps, rather than facilitating general payments.

The list includes technology firms such as Microsoft and Dell, but also a range of other companies like Subway, Sears, online dating network Badoo, and global charity Save the Children.

With Bitcoin’s popularity booming it would be easy to suggest that it will be the only one of 710 cryptocurrencies left in the next decade. But, as with any good idea – there are flaws too. New start-ups are emerging almost all of the time to ‘solve’ issues they believe Bitcoin has. For example, there have been delays with transactions being verified, which has led to users switching to other cryptocurrencies like Litecoin, which has a 2.5minute transaction time compared to Bitcoin’s nine minutes.

And some businesses just don’t yet see the value of Bitcoin – or indeed other cryptocurrencies. For example, Amazon doesn’t accept them and Scott Sherwood, founder of software testing platform TestLodge says that he hasn’t considered using digital currencies either.

“We use a payment subscription service for handling all payments and it doesn’t have any functionality around these currencies. Even if it did, we would have to question if it’s worth the development time to implement the ability to accept them. It also depends on how many business customers would hold the currency for payment of B2B services. Today, the US dollar is considered a globally acceptable currency anyway.”

But will cryptocurrencies continue their march anyway? New financial technologies are often met with suspicion, right before their enthusiastic adoption. There was initial reticence over contactless payments. But, according to the UK Cards Association, contactless payments were up 269.1 per cent in August this year against a year ago. And retailers are reaping the rewards of quicker service and a better customer experience.

There are a number of issues that are standing in the way of cryptocurrencies becoming mainstream. According to Bruno the main questions are around who owns the asset, and who will determine the regulations of use. Will banks or nations find a way to become the ‘owners’? Or will they remain devolved and un-ownable?

“This has more to do with politics and regulation and not so much about coding – it’s the social layer that is more interesting than the technology side,” says Bruno.

And, unlike Bruno, not everyone is convinced tha barriers will be overcome. Clive Longbottom, an IT expert and analyst for Quocirca, believes that cryptocurrencies are a “pointless idea” but that the underlying blockchain technology could still be used for other purposes. He says that despite the overall trend in Bitcoin transactions going upwards on a daily basis, a lot of the use of cryptocurrencies is just in mining them, rather than using them.

“It is like spending £500 on a metal detector and going to a beach in the hope of finding some ancient Roman gold,” he argues.

Longbottom says that with no protection, a highly variable and unpredictable exchange rate, and a perception that the main use for Bitcoins is for paying ransomware and other ‘dark market’ bills, it is unlikely that the general population is going to take to such a currency.

“It is a market that is trumpeted by the few and used by even fewer,” he states.

This hasn’t stopped new cryptocurrencies from emerging; over the last year, there has been an increasing focus on ‘appcoins’, digital currency used by app creators to support their projects. Meanwhile Zerocash, a virtual currency that uses a code similar to Bitcoin enables all transaction information to remain anonymous, is also on the horizon.

Despite the many obstacles that these currencies have, the fact that governments and banks are taking them seriously, suggests that they will eventually go mainstream. According to a recent Gartner research paper, over time, the number of competing currency platforms will diminish as some players falter and others are absorbed by larger competitors. The technology analyst firm said that the road to the programmable economy “is a long one which will take decades” - just as the internet and web each took decades to reach their full potential. It advises organisations in the short to mid-term to prepare for a ‘multi-blockchain’ world.

“Organisations should assume that, whatever blockchain technology they select and put into production this year, it is likely that, within 18 to 24 months, these will be unplugged in favour of more evolved alternatives”.

For the moment, a survival of the fittest battle amongst cryptocurrency providers rages on.

Sooraj Shah is a freelance tech journalist who regularly contributes to Infosecurity Magazine, TechWeekEurope, Computer Weekly and more.