Understanding crypto assets: An overview of blockchain technology’s uses and challenges

Summary:

Blockchain and its applications, in particular cryptocurrencies, have grabbed the headlines, but many people still do not know how they work. This briefing provides an overview of the uses and challenges of this technology, based on published information. Blockchain originated as part of the enabling digital ledger technology (DLT) developed at the end of the 20th century. DLT works as a digital database containing information (as a record book or ledger) that can be simultaneously used and shared through a network (as a shared digital ledger). The technology is considered to render the recorded elements unchangeable (immutable) and the process open (decentralised) by using a publicly accessible network. However, in practice, the outcomes can differ from the initial technological design. Virtually anything of value (assets) can be tracked and traded on a blockchain. Blockchain works with tokens (values in the digital ledger), tokenisation (using the blockchain for existing assets) and smart contracts (computerised and pre-specified conditions that self-execute when they are met). Currencies and assets can be exchanged and traded in both the 'real' and virtual world. The use of blockchain for currencies originated from an analysis of shortcomings in the traditional financial environment. Crypto assets range from tangible to non-tangible assets, and to understand them one must look into their substance and the conditions attached to them in their digital definition. After more than a decade, a number of challenges have appeared, ranging from the protection of citizens to the preservation of the legal economy and the carbon impact of crypto assets. This briefing looks at both the implementation of blockchain technology over this period and at whether it has delivered the expected outcomes.

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