IBM and Bitcoin – What is going on here?

This story came from : http://finance.yahoo.com/news/ibm-developing-bitcoin-featured-payment-190907679.html

By Zacks Equity Research

Reportedly, IBM Corporation IBM is going to adopt blockchain — the technology behind Bitcoin — to create its own digital cash and payment system for major currencies. However, Bitcoin, currently available only in the U.S., has been heavily criticized for its cryptocurrency feature.

However, the IBM move failed to impress investors and its shares closed 2.34% ($3.70) lower at $154.28 on Friday.

Although not popular among the masses, cryptocurrency is likely to be the next revolutionary change in the digital payment system. Cryptocurrency, pioneered by Bitcoin to be used in the commercial space, does not require any central regulating authority and the transactions take place between the involved parties only. It uses military-grade cryptography to protect users against fraud.

Payments can be made via smartphone apps or their desktop versions. This is generally used for transferring funds electronically and does not require a credit card or PIN.

While most of the companies such as Microsoft Corp. MSFT, eBay Inc. EBAY and Expedia EXPE have accepted the Bitcoin platform, IBM plans to expand the use of blockchain technology beyond Bitcoin. If rumors are to be believed, IBM is working with the Federal Reserve to explore this new technology to aid cross-border cash payments. If central banksback IBM’splans, then it should be able to build the secure and scalable infrastructure for the project.

However, security, one of the reasons behind the creation of this digital platform, remains a major concern in adopting cryptocurrency and deters further development in this field. In March last year, exchange market Flexcoin blacklisted Bitcoin following the theft of 896 Bitcoins, then worth $625,000. Bloomberg also stated that Bitcoin was the worst performing currency in 2014.

IBM’s project is at the nascent stages and it is yet to be seen how the company addresses issues about money-laundering and criminal activities. Though the company has not revealed much on its plans, it is expected that this Zacks Rank #3 (Hold) company would work with the central banks to secure its platform.

According to reports, the coins issued over the IBM platform will form part of the money supply. Instead of real money, these coins would be linked to a user’s bank account and used as token. The account will probably be integrated with the proposed digital currency ledger through the wallet software.

We believe that such innovations by tech giants like IBM would address issues related to digital currency payment systems and provide a better alternative that can fully replace federally issued money.

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