Bitcoin, after reaching a peak value of $1,147 in December 2013, has now become a far more dependable currency valued at around $400 per bitcoin with only comparatively limited value fluctuation. Despite the perception that it is used for nefarious and underground deals, with sites like Silkroad creating a media storm against the digital currency, it is becoming a more widely accepted payment option, with some of the biggest companies in the world now accepting it as currency. Traditional companies like Paypal, Subway, CVS and Whole Foods are even jumping on the bandwagon and using the digital currency on their sites.
However, all is not well in bitcoin use, with companies looking at payments being made using traditional data analytics methods, and trying to track payments in order to create actionable insights. Although this may sound sinister, It is a practice that has been used for credit cards, cheques and electronic payments for decades. The difference with bitcoin is that it is a currency founded on a certain level of anonymity, making some uncomfortable with the practice
One of the key differences between the two payment systems is that a payment through a credit card or similar needs to pass through a third party, whereas a bitcoin transaction creates a block, which, when added to all other bitcoin transactions, creates a blockchain. This means that technically it is possible to see every single Bitcoin transaction, which is a data scientist's dream. The problem is that although the transactions can be seen, the unique wallet address and identity is known only to the two people in the transaction.
However, with new analytical technologies it may be possible to track who is buying what and paying for certain services using Bitcoin. Although this may be going against some of the key principles of Bitcoin, there are some significant benefits.
One of the key benefits will be the validation of transactions and making sure that the people with whom companies are doing business are legitimate and trusted. At present this is difficult as the level of anonymity means that sometimes even the most basic levels of oversight are difficult to find.
But why is this important?
We have seen that many companies have already adopted, or are looking at adopting, digital currencies where this kind of blockchain is used. Without being able to identify specifically who these people are, their legitimacy and their previous actions, it may be impossible to adhere to increasingly complex regulations or not unknowingly sell goods to a cyber criminal.
Using in-depth analysis of blockchains through the data they produce and pattern recognition across thousands of interactions, it may be possible to identify nefarious users and those you should avoid doing business with. It is the equivalent of credit checks on a credit card, making sure that the actions are legal and genuine. This kind of work is not only going to be useful for the future of digital currencies, but will create the foundation upon which a fully useable digital payments system can be implemented.
Without data analytics, the theft of bitcoins or even fraudulent use of currencies, could become possible. This is going to be important, as despite the digital currency currently having strong security, the increasing use of quantum computing and data-driven hacking means that there is a strong potential for leaks. Being able to identify those who are likely to have committed these is going to be key to making sure that transactions are safe, secure and most importantly, legal.