By all accounts, the coronavirus has been an economic disaster. In the past two months, several countries across the world have been put on the brink of an economic collapse, as more people have had to stay home and stay off work in a bid to remain safe from it.
A significant amount of countries have instituted stay-at-home orders, while most countries that aren’t under complete lockdown have, at least, issued partial closures. Businesses have been forced to stay out of operation, and workers have been laid off in their numbers as well.
The debacle of the traditional economic system
All of these have our economies in a bit of a tight spot. While some of the strongest economies have been able to weather the storm and stay solvent, for now, not every economy has been that lucky.
So far, we’ve seen significant shifts in the stock market, where company shares are exchanged between traders. The Financial Times Stock Exchange 100 Index and the Dow Jones Industrial Average have both fallen since the outbreak began on the last day of 2019. Both indexes saw their largest quarterly drops in the first quarter of the year since 1987.
All of these have spooked investors to a significant degree. Investors are now afraid of a possible economic collapse, and while governments have helped, there’s still a lot that needs to be done.
In response to this, several central banks have taken measures to revive the economy and keep things steady while also keeping people home and restricting them from working.
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For instance, the UK government slashed interest rates intending to make borrowing cheaper and allow more people to spend money. This, in theory, would help to prop up the economy.
In the US, Congress passed a US$2 trillion coronavirus stimulus package, which was distributed to individuals and businesses to help them stay solvent. While a lot of these helped companies to stabilise and ward off the virus’ effects, for now, analysts have come out to explain that their palliative effects can’t be sustained.
Apart from the economic downturn, there’s also been the fact that the labour market has taken a significant hit. In the US, over 30 million people have sought unemployment benefits in the last two months alone.
While the country has been on a decade of employment expansion, the COVID-19 snagged that run, leading to a record number of people filing for unemployment.
Then, there’s an unprecedented crash in the price of oil. So far, Brent crude oil, the oil price benchmark for Europe and a significant portion of the world, has now dropped to below US$20 – its lowest point in almost two decades.
In the United States, however, the price of the West Texas Intermediate (WTI) oil benchmark turned negative for the first time.
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All of these have gone to mean one thing; the traditional financial market is on the brink of collapse, and more than ever, investors are looking for a way out.
Bitcoin’s rise in the midst of the storm
This search for a safe haven has been especially interesting. While investors in the past would have gone for alternative assets such as gold, cryptocurrencies have been the go-to choice at this point.
Bitcoin, the top digital asset, dropped in its value along with the traditional stock market at the beginning of the pandemic’s wave. However, it’s been able to rebound and even surge.
On March 11, the World Health Organisation declared the coronavirus a pandemic. On the day, Bitcoin dropped from US$7,940 to a low of US$4,547 on March 13.
The asset continued to trade in that region for a week, never crossing the US$5,500 mark. Fast-forward to May 1, and Bitcoin has already eclipsed the US$7,000 mark. It even crossed US$9,200 on April 30, although it’s now trading at about US$8,970.
The gains have expanded beyond just Bitcoin. All large-cap cryptocurrencies are seeing significant value increases, thus providing cause for investors to make the switch from the traditional to the crypto space.
Examining blockchain’s scalability problem
Investors have noticed this as well and are now turning to the top digital asset in their droves. However, this also presents a significant problem on its own.
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An increase in the number of crypto investors means an increase in the number of transactions. Cryptocurrencies run on blockchain technology, and so far, it has had its issues with effective scaling.
Several blockchain platforms are still dealing with issues such as 51 per cent attacks, a lack of speed, and block size limitations, meaning that while the technology has been revolutionary, it still has its limits.
Take Bitcoin, the ideal choice, for example. The asset processes 4.6 transactions per second, while a platform like payment processor VISA processes over 1,700 transactions.
A research paper from Deloitte Insights explained that blockchain-based systems have an inherent lack of speed with them. For individuals and organisations that would focus on high-efficiency transactions and legacy processing systems, this is a significant problem.
We saw what that was like in 2017 and 2018 when the Bitcoin network became incredibly slow. The Ethereum network saw the same thing, after the popular Cryptokitties game congested it.
It’s gotten so bad that the usual solutions – either reducing the hash complexity or increasing the size of transaction blocks – are no longer enough. With each solution, the scaling ability reaches a limit before we can get the number of transactions needed to compete with platforms such as MasterCard and VISA.
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So far, there are a lot of solutions that have tried to help with this. One of the most popular is the Libonomy Blockchain– a fifth-generation blockchain platform that provides both optimal scaling and interoperability with other blockchains to allow users to write their smart contracts and create their decentralised applications.
The platform regulates blockchain scalability through the use of artificial intelligence. It analyses nodes and informs blockchain users when any one of them isn’t working as it should.
It moves forward by providing security through a self-attacking protocol that constantly runs attacks on it in a bid to search for vulnerabilities.
Through a self-learning algorithm, artificial intelligence, and unique testing systems, developers have been able to find an impressive means of allowing the blockchain to work more efficiently.
Platforms such as Libonomy provide hope of a better future for the blockchain space, vis-a-vis scalability. In a world where more people are looking to get into crypto, there’s a need to solve this problem as fast as possible.
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