[Twisting Bitcoin] Can Blockchain Be Compared to the Internet?

Internet Already Chosen by Market... What About Blockchain?
Greater Interest in Cryptocurrency Prices Than Blockchain's Value
Need to Consider How Blockchain Can Solve Social Issues

Cryptocurrency is sweeping across the globe. It is even likened to a so-called 'frenzy.' However, the more intense the frenzy, the more necessary it is to pause and observe carefully. If problematic aspects are swept away together, they are bound to manifest as bigger issues someday. This is a time to calmly review the cryptocurrency market, a segment we call 'Twisting Bitcoin.'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Recently, Bitcoin has been stagnant. Unlike the fluctuations close to 10 million KRW per day seen in April and May, this month it has been moving between 36 million and 41 million KRW. Cryptocurrency investors have expressed anxiety, fearing that after this sideways movement, a crash might eventually occur.

However, if blockchain technology holds potential for development, cryptocurrencies also have long-term investment value. Those who view cryptocurrencies as long-term investments compare blockchain to the development of the internet. At that time, the internet was called an innovation and caused the dot-com bubble in financial markets; blockchain is said to follow a similar trajectory. A cryptocurrency expert predicted in an interview, "In the future, a second internet based on blockchain and cryptocurrencies will emerge."

The government has also decided to support the blockchain industry. On May 27, the Ministry of Science and ICT (MSIT) announced that it would promote the 2021 blockchain pilot project together with the Korea Internet & Security Agency. A total of 15 tasks were selected, including voting systems and donation management systems, with the main purpose of exploring the practical applicability of blockchain in daily life. The MSIT's blockchain-related budget increased from 34.3 billion KRW last year to 53.1 billion KRW this year.

However, questions arise. Is it appropriate to compare blockchain to the internet? Experts explain that since the starting points of the internet and blockchain are different, they cannot be compared. They also point out that one should not infer blockchain's success potential from the internet. How did the internet become embedded in our daily lives, and how is blockchain different?

Internet Started as a Military Network... Already Accepted by the Market

The internet was developed in the late 1960s by American scholars researching computer networks. At that time, the U.S. Department of Defense's Advanced Research Projects Agency (ARPA) created the prototype of the internet, called 'ARPANET,' to exchange information through alternative routes even if a central computer was destroyed by enemy attacks.

However, ARPANET's existing local communication protocol (NCP) was inconvenient for connecting with other networks. Therefore, a new Transmission Control Protocol/Internet Protocol (TCP/IP) was developed to unify the language between computers. From this point, the number of internet users surged, and ARPANET was divided into areas accessible by the U.S. Department of Defense and civilians.

In 1983, ARPANET was renamed the internet, and with the birth of the World Wide Web (WWW) in 1989, usage increased further. The number of connected servers was only 100 in 1985 but surged to about 200 in 1987 and 2,218 in 1990. By 1995, the number of official internet subscribers worldwide exceeded 40 million. The internet craze also swept South Korea. Domestic internet subscribers increased from 120,000 in 1995 to 352,297 in 1996. At that time, even the Blue House had established an internet homepage.

Irresistible Computer Network Industry... Beginning of Government Support

[Image source=AP Yonhap News]

Accordingly, South Korea also began supporting the internet industry. The Ministry of Information and Communication was launched in 1994 and invested generously. In 1998, the Kim Dae-jung administration decided to urgently support 300 billion KRW in postal financial funds to small and medium-sized enterprises in the information and communication sector to foster venture companies. Additionally, 135 billion KRW was allocated as supplementary budget for public work project funds to hire highly educated personnel. Corporations were established to build techno parks in regions such as Incheon, Daegu, and Ansan to provide safe spaces for internet-related venture companies. These investments played a significant role in South Korea becoming an IT powerhouse.

However, experts emphasize that the focus should not be on government support for the internet itself. The government's support target was not the internet but the value of 'networks.' Professor Lee Byung-wook of Seoul School of Integrated Sciences and Technologies explained, "What the government supported was technology that facilitates smooth data communication between computers," adding, "Before the government decided to support it, the internet had already proven its utility and survived in the market."

Has Blockchain Survived in the Market?

Blockchain, like the internet, was developed long ago. In 1975, IBM developed the Data Encryption Standard (DES), an advanced encryption technology for the private sector, at the request of the U.S. National Institute of Standards and Technology (NIST). In 1985, Dr. David Chaum conceived the 'e-cash' system that encrypts all transaction details. Dr. Chaum is still regarded as the father of cryptocurrency. In 1991, scientists such as Stuart Haber and Scott Stornetta used blockchain technology to store information. Bitcoin was developed in 2009 by Satoshi Nakamoto, but blockchain technology had already been evaluated in the market before that.

However, blockchain technology has not been practically adopted in the market for over 40 years. Professor Lee said, "The reason blockchain technology has not taken root is due to its lack of utility," adding, "If blockchain were excellent and a technology desired by the market, it would have established itself in the market before the government explored its applicability, just like the internet."

There was an attempt to apply blockchain technology. In 2017, the Australian Securities Exchange (ASX) decided to introduce blockchain to replace its stock settlement system, CHESS. At that time, ASX was struggling with issues arising from back-office tasks such as payments and taxation. ASX stated that by adopting blockchain, it would "improve record management and make post-trade services more efficient."

However, ASX's blockchain adoption appears not to have been realized yet. Professor Hong Ki-hoon of Hongik University's Business Administration Department said, "Blockchain technology is considered secure because many participants verify repeatedly as much as possible," adding, "It is a very inefficient technology for stock exchanges where data processing must be fast." Currently, ASX has postponed the launch of its blockchain system until 2023.

Receiving Government Support Without Market Adoption... What Will Blockchain Solve?

[Image source=Reuters Yonhap News]

Unlike the internet, blockchain has not proven its utility on its own, so it is pointed out that it must find its value from now on. Ultimately, if it is difficult to apply in real life and does not receive market acceptance, government support will lead to waste of tax money. Although the cryptocurrency frenzy has occurred, society has been more interested in cryptocurrency prices and sudden wealth than in blockchain's practical applications.

Professor Lee explained, "Technology should aim to solve problems existing in society," adding, "It is unclear what social problems blockchain exists to solve." Professor Hong also emphasized, "The only major case where blockchain technology has been widely applied is ASX," and stressed, "Focus should be on blockchain technology itself rather than cryptocurrency prices or the exchanges handling them."