bitcoin
- by Ana Savic
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South Africa's central bank has launched a program that will trial JPMorgan's Quorum blockchain potential in interbank clearing and settlement.According to an official statement dated Feb. 13, the South African Reserve Bank (SARB) revealed it has established a fintech program that will prioritize, among other things, a project dubbed Khokha to explore a proof-of-concept (PoC) using the tech.
The SARB further said in the announcement that it will partner with ConsenSys, the ethereum technology development startup, in developing the PoC. The project will involve replicating the wholesale payment process on Quorum, the enterprise blockchain co-developed by JPMorgan and ethereum startup EthLab.The SARB states:"The aim of this project is to gain a practical understanding of DLTs through the development of a proof of concept (PoC) in collaboration with the banking industry. The objective of the PoC is to replicate interbank clearing and settlement on a DLT which will allow the SARB and industry to jointly assess the potential benefits and risks of DLTs."
The initiative is the latest effort from South Africa's financial institutions to explore the application of blockchain technology. As reported in February last year, several major banks in South Africa, including the SARB, have already charted a course toward large-scale blockchain implementation.
That said, the SARB stressed that the new effort doesn't mean it is already making the radical move to integrate DLT in the national payment infrastructure. Rather, the PoC is an experiment to understand the impact of using DLT to transact tokenized assets.
Elsewhere in the announcement, the central bank said it will also review a regulatory framework around cryptocurrencies that will primarily focus on issues of anti-money laundering, tax compliance, settlement risks and capital exchange control.
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Francisco Gimeno - BC Analyst South Africa is the head of the spear for Blockchain in Africa. This is a good development.- 20 2 votes
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Bitcoin is a cryptocurrency whose origins are shrouded in mystery and whose current circumstance no one could’ve predicted. This is a currency that’s completely online and not tied to any central bank.
Instead, it’s verified by individuals in an open ledger available for all to see. It was created in 2009 by an anonymous person called Satoshi Nakamoto, a Japanese man’s name as common as John Smith in America.
After being steady for years, the price of bitcoin has taken off since January of last year, and has been on an absolute tear since November.
At the time of writing, it’s over $9,000. It first broke the $1,000 threshold on Jan. 1, 2017, and reached $19,000 in December of that same year. Afterward, it lost 50% of its value, only to begin a dramatic climb back up.Since it’s not tied to any bank, bitcoin is unregulated and its control decentralized.
As a result, bitcoin owners remain anonymous. Records of transactions however are accessible via a public log. But bitcoin owners’ names are never revealed, only their bitcoin wallet IDs—an encrypted bank account where one’s digital currency is stored.
People can purchase bitcoin through online exchanges, on websites like Coinbase, Bitstamp, and Bitfinex.It’s not totally safe, however. Bitfinex was hacked in 2016 and $60 million worth of bitcoins were stolen. The sheer nature of bitcoin makes them untraceable.
This reveals another dark aspect. It’s made the cryptocurrency popular among those looking to buy or sell drugs or other black market products online.
Bitcoin’s trajectory over one year, February 14, 2017-18. Credit: Coindesk.com.
A person can give bitcoins as a gift or use them to pay off a debt. A few small businesses accept them and in this way, avoid the vendor charges that come with processing a credit card payment.
Due to its decentralized nature, transactions using bitcoins have to be verified, which is where mining comes in. And just as with every resource, there’s scarcity.
For instance, there will only ever be 21 million bitcoin in the world. So far, about 12 million have been mined. It’s estimated that the remaining 9 million remaining will all be mined by the year 2140. Since there’s a finite supply, bitcoins are thought to gain value over time, a fact which has motivated a mining boom.
Miners use computers to solve complex math puzzles in order to verify the bitcoins used in a transaction. The first person to crack the math problem becomes the winner. As a reward, they are usually given 12.5 bitcoins. Note that a bitcoin goes to eight decimal places.
As you might expect, this setup causes some competition among bitcoin miners.Thousands of miners worldwide compete to mine any one bitcoin transaction. Think about this—every ten minutes a miner earns bitcoins as a reward for verification.
The network keeps a record of each bitcoin transaction. These records are bundled together with all the others made within that same time-period. A bundle is called a “block.” Blocks are then entered into the public record in chronological order, which is known as the blockchain. You can check the latest real-time bitcoin transactions through websites like Blockchain.info.
A bitcoin mining operation in Russia. Credit: Getty Images.You don’t have to necessarily be proficient in computers to mine. You’d need some open source, basic software such as GUI miner.
As for hardware, you’d require a motherboard, some graphics processing chips, and fan to cool down your rig. It used to be that anyone could mine bitcoins.
But today with the heightened interest and the math problems growing exceedingly difficult, outfits with more computing power have come to dominate this activity. It’s gotten to the point where bitcoin mining centers have become the majority of the network.
These are places around the world where mining takes place on a large-scale, usually where energy is either inexpensive or free. So operators pack a facility with computers, servers, and cooling devices.
Certain areas of China see many such centers due to free hydroelectric power. But the country is looking to curtail bitcoin mining, which may send operations elsewhere. Canada is one possible location.
While in Iceland, where bitcoin mining has become a sensation, a number of such centers have been proposed and officials warn these operations will use more electricity than is required to power all the homes in the country. Johann Snorri Sigurbergsson, the spokesman for Icelandic energy firm HS Orka, told the BBC, “If all these projects are realized, we won’t have enough energy for it.”
Large-scale bitcoin mining centers are low investment. In places with inexpensive or free power, returns can be significant. Credit: Getty Images.
Energy is inexpensive in Iceland since they get all of it from renewable sources like wind and hydroelectric power. The small population of the island, just 340,000 people, use about 700 gigawatt hours of energy annually. Whereas, the bitcoin centers are expected to suck down 840 gigawatt hours of electricity per year.
Since massive amounts of power are used, the environmentally-minded consider the practice extremely wasteful. Bitcoin mining is a smart business model because it requires no staff, a small investment, and today, the taxes on such operations are low, although that may change, as Iceland’s politicians have been made more aware of issues surrounding bitcoin mining.
An Icelandic member of parliament, Smári McCarthy, told the AP, "We are spending tens or maybe hundreds of megawatts on producing something that has no tangible existence and no real use for humans outside the realm of financial speculation.
That can't be good."One report found that all the cryptocurrency mining occurring worldwide could power Ireland for a year, but those figures may not be accurate. As a result of concerns over power usage and a lack of control over bitcoin overall, some countries such as South Korea are mulling over a system to license and regulate bitcoin transactions.
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While in South Korea for the Winter Olympics, CNBC's Carl Quintanilla takes a look at the surge in cryptocurrency trading in the country and what regulations could come from the government.
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IBM Global Industries Senior Vice President Bridget van Kralingen on the company's investment in blockchain technology.
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A top European Central Bank policymaker has joined calls for a global clampdown on virtual currencies such as bitcoin because of their threat to financial stability.
Yves Mersch, a member of the ECB’s executive board, said the central bank shared the views voiced by Agustín Carstens, the head of the Bank for International Settlements, who on Monday condemned bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster”.
“We at the ECB are fully in line with his views and we have similar worries,” he told Bloomberg TV.
Later, when Mersch spoke at the Official Monetary and Financial Institutions Forum in London, he called for “global answers” to “safeguard the integrity of financial sector services”, adding: “Resolute ring-fencing measures might be needed.”
Q&A
What is bitcoin and is it a bad investment?
He said bitcoin was “far inferior to existing payment options” because it was slow and expensive. Bitcoin transactions can easily take several hours to process. “At these speeds, if you bought a bunch of tulips with bitcoin they may well have wilted by the time the transaction was confirmed.
”
He ended his speech on a more positive note. “Virtual currencies are not money, nor will they be for the foreseeable future,” he said. “But just because the initial euphoria and hype subsequently fade, it does not mean that the innovation is without virtue, even if early market leaders may not last the distance.”
Bitcoin allows people to bypass banks and traditional payment methods to pay for goods and services.
The price rose 12% to $8,498 on Thursday. It has traded wildly in recent weeks, having started the year at $13,880, with investors fretting about potential intervention by regulators.
Bitcoin surged 900% last year, making it the best-performing asset of 2017, and hit a peak of almost $20,000 before Christmas.
Goldman Sachs’ global head of investment research, Steve Strongin, also warned this week that most, if not all, of today’s digital currencies were unlikely to survive in their current form.
“The high correlation between the different cryptocurrencies worries me,” he said. “Because of the lack of intrinsic value, the currencies that don’t survive will most likely trade to zero.”
He said digital coins had slow transaction times, security challenges and high maintenance costs, and added that the introduction of regulated bitcoin futures on a Chicago exchange had failed to address such concerns.
“Are any of today’s cryptocurrencies going to be an Amazon or a Google, or will they end up like many of the now-defunct search engines? Just because we are in a speculative bubble does not mean current prices can’t increase for a handful of survivors.
At the same time, it probably does mean that most, if not all, will never see their recent peaks again.”
Strongin sounded more positive about the blockchain technology that underlies digital currencies, saying it could help improve financial ledgers (a complete record of financial transactions). But he also cautioned that current technology did not offer the speed required for market transactions.
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