Stack of silver coins as example for virtual crypto currency

ETA Expert Insights: Cryptocurrency – Separating the Facts from the Hype

ETA Technology Committee

Contributing authors: David Leppek, Transaction Services; Scott Goldthwaite, Aliaswire

With every new story about bitcoin and blockchain, the question on everyone’s minds looms larger: Will cryptocurrencies ever replace dollars? Probably not. But their true value lies elsewhere Will cryptocurrencies ever replace dollars? Probably not. But their true value lies elsewhere.

Firstly, a cryptocurrency is a digital currency – an electronic medium of exchange that is not backed by a central bank or other central repository – that uses cryptography (encryption) to generate new units and verify transactions. These transactions are anonymously recorded on the blockchain, a public ledger that operates independently of a central authority. To “send” someone a bitcoin, you would append a block to the end of the ledger and solve a mathematical proof that serves as the timestamp of the transaction. The other nodes on the network then verify that your node solved the proof and confirm the transaction. Once that block has been added to the chain of preceding transactions – hence, blockchain – it cannot be altered without altering all subsequent blocks that have been attached to it, which would require a majority of the network to collectively agree to do so.

All this needs to happen to prevent the same “coin” from being spent repeatedly (known as the double-spending problem). As the blockchain network gets bigger, it becomes more tamper-proof. Bitcoin and other cryptocurrencies offer one key advantage: they are decentralized, meaning they do not require a centralized third party to confirm transactions between the sender and the receiver. The entire network confirms the transactions.

However, cryptocurrencies are notoriously volatile. The value of Bitcoin fluctuates by the second and can vary by hundreds of dollars within a single day. Bitcoin reached its all-time peak value of $19,289.79 per bitcoin on December 17, 2017. Since then, it has fallen about 65% to hover around $7,000 per bitcoin. This year, the price of bitcoin has fluctuated by about 8% every two days (as reported on This level of volatility makes it impossible to use cryptocurrencies to purchase goods and services in the real world.

Cryptocurrency transactions are also slow and susceptible to costly transaction fees. Because transactions must be confirmed by a majority of the blockchain, obtaining that level of consensus takes time. In the last few months, the confirmation time for the average bitcoin transaction has hovered at roughly 26 minutes, down from an all-time high of 11,453 minutes (about 190 hours) on January 23, 2018. Bitcoin senders can opt to include a fee in their transaction that goes to whichever miner includes their transaction in a block. When demand on the blockchain is particularly high, fees can become exorbitant. Average bitcoin fees reached an all time high of $55 per transaction on December 21, 2017, falling to less than $2 per transaction in March of this year.

One solution to these problems is to change how transactions themselves are verified. Cardano is a cryptocurrency network that grants nodes the ability to “mint” a new block based on the size of their stake in the network (namely, how many coins they own). This protocol is called Proof-of-Stake, to distinguish it from Proof-of-Work, which refers to nodes on the Bitcoin blockchain solving a complex mathematical algorithm to timestamp a transaction. Proof-of-stake is designed to take less time than proof-of-work. Cardano’s coin is called an Ada (named after one of history’s first computer programmers, Ada Lovelace). The network is designed to accommodate multiple layers to increase efficiency and build scale quickly.

But the truly interesting applications of cryptocurrency lie beyond the monetary transaction. Self-executing contracts have been heralded as the next evolutionary phase of the financial sector. In a self-executing contract, transactions can be coded such that they can only be confirmed once one or more conditions are met. The Ethereum network is a distributed ledger custom-built for self-executing contracts. It is frequently used for Initial Coin Offerings, whereby companies (typically startups) can issue tokens representing a stake in their organization to investors in exchange for legal tender (or occasionally, in exchange for other, more established cryptocurrencies like Bitcoin or Ether).

Distributed ledgers can be used to validate any kind of data. They need not be public like the Blockchain – in fact, many financial institutions are experimenting with private distributed ledgers that create “fingerprints” of every transaction. Candex uses blockchain technology to create a secure online marketplace where companies can pay their vendors quickly and seamlessly. But public ledgers could help companies and consumers audit supply chains. Borsetta uses blockchain technology to verify the origin, cultivation, production, ownership, transaction, certification and value of diamonds. As time goes on, more creative applications will emerge. These technologies are still in their infancy, and whether they mature into sophisticated cryptoassets or overhaul financial accounting, their potential is still largely undiscovered.


About the Authors:

David Leppek is President of Transaction Services and former Chair of the ETA Payment Sales & Strategy Committee.

Scott Goldthwaite is Senior Vice President of Operations at Aliaswire and Vice Chair of the ETA Technology Committee.


We’ll continue the conversation on cryptocurrencies and distributed ledgers at TRANSACT next week. Emi Yoshikawa of Ripple, Dave Birch of Consult Hyperion, and Guillaume lebleu of First Data will take the Trustwave Keynote Stage on Thursday, April 19 at 9:30 am for “Blockchain and Distributed Ledger: Strategic Opportunities to Consider.” This keynote discussion will focus on use of blockchain and distributed ledger technology to streamline and modernize the acquiring channel. On Wednesday, April 18 at 10:15 am, Scott Goldthwaite with join Jeremy Lappin and CEO of Borsetta, Inc. Pamela Norton for a panel discussion titled “Blockchain 101.” Click here to learn more about TRANSACT. 

  • 1