We’re at the ground floor of a new paradigm in humanity that would change the human experience – it’s called Blockchain. The thing that is going to change is trust.
Trust is an essential component of any commercial exchange. When parting ways with your hard-earned money for any good or service, you have to trust that you are receiving a product that is exactly what you expect it to be. You have to be certain that the other party in that exchange is not deceiving you and is selling a product worth buying. Trust plays a major role in brand loyalty.
Why do I buy an iPhone? Because I trust that I am receiving a product that works and offers me a satisfying experience when using my mobile device. Why do I buy organic food? Because I trust that the supply chain offers me a clean product without any GMOs or pesticides which could be harmful to my health.
The Blockchain is a new technology that guarantees that I can trust a commercial enterprise through the distributed ledger.
What is Blockchain?
If you haven’t heard of Blockchain yet, you certainly will. In years to come, the technology involved will form part of our everyday lives, much like the automobile or the internet.
For those of you that aren’t accountants and are unfamiliar with what a ledger is, a ledger is a record of transactions used by banks and companies to ensure that their books are balanced, that I have a bank balance of x. After I spend money on a product, the bank balance changes to x minus the value of the product. When I get paid my salary at the end of the month, my balance changes to x plus my salary. We pay banking fees for the banks to serve as an intermediary that ensures that these transactions are recorded.
When I apply for a home loan, my bank statement provides a record of my spending activity, which is used as a determinant to establish whether I’m capable of paying my monthly installments. The same applies for any application for credit. Credit agencies also keep track of these records. Business transactions are monitored in the same way and companies are often audited to ensure that there has been no fraudulent activity, such as tax evasion.
What Blockchain does is it automates that process of record keeping in a very, very secure way, where transactions cannot be changed and the system is secured by cryptography on a military-level scale. The Blockchain is unhackable and it is going to change the way that every industry is run. Cryptocurrencies, such as Bitcoin and Etheruem are just the starting point as we begin to change the way we look at money and transactions.
Bitcoin and cryptocurrency
For the sake of this article, I will discuss the use of Blockchain technology in simplified terms to give you a basic idea, because the concept of cryptography is not easy to explain in a concise manner. You can read up more on it if you’d like to get into the finer details.
Bitcoin was invented by an anonymous programmer operating under the pseudonym Satoshi Nakamoto and was released as an open source software in 2009. The exchange of currency between users could be done directly without the use of an intermediary (banks). This was made possible by Blockchain technology, which made the ledger available to the public and allowed people referred to as “miners” to verify transactions. Miners present proof of work by using the public keys through which money is sent (much like your bank account number) and decrypting. It’s a difficult process and requires high powered computers, but allows the miners to earn Bitcoin for their work. Currently, there are hundreds of thousands of miners operating to verify transactions.
Once transactions are verified, they are approved and form part of a “block”. This block needs to use the previously approved blocks to be verified. Therefore, one block is built upon another, which is built upon another ad infinitum. This is what makes the Blockchain so secure. Previous transactions cannot be changed and to hack into the system is impossible because it requires hackers to hack into every miner’s computer around the world and present proof of work for every single encrypted block in the entire Blockchain, creating a level of security that has never before been imagined.
For Bitcoin and other cryptocurrencies that use the same technology, this yields other advantages, such as the fact that, because miners compete to be the ones to present proof of work faster than the rest, transaction times are cut down significantly and at a far cheaper rate. In other words, an international payment, for example, that would have taken days to clear through traditional banking systems and would cost, say 10%, of the total value to complete, now gets completed in minutes and at a far lower cost (typically 0.01%).
What makes Bitcoin such a sought-after currency today is the fast, cost-effective transactions and, most importantly, security and trust. The trust aspect took almost 10 years to communicate, but as more and more people gained an understanding about how Blockchains and cryptocurrency works, the value of trading Bitcoin has skyrocketed. For now, the value of Bitcoin is incredibly volatile, but the fact is that, while Bitcoin was trading for roughly $0,10 just a few years ago, one Bitcoin is valued at above $4300 today. Bitcoin is easily transferred into traditional currency in seconds with little to no transaction costs, making payment systems very easy. Bitcoin will eventually become a global currency, along with several other cryptocurrencies that have jumped upon the Blockchain bandwagon. But it doesn’t end there…
The pending Blockchain revolution
Not only are cryptocurrencies like Bitcoin providing a far better, trustworthy solution to our private banking systems, but they will also have an effect on a macroeconomic scale because there is no central authority that can alter the monetary supply or interest rates. This counteracts inflation and other economic spinoffs that have, to date, served to benefit only the richest of the rich, while keeping the rest of us from enjoying the prosperity that we can only dream of.
The currency’s value is determined by everyone that uses it. Wall Street has been pulling a fast one over us for years, using capitalism and Adam Smith’s Laissez Faire (or “invisible hand”) as an excuse to keep the economy in check. With no central authority, such as a central bank, controlling the money, it is everyone that determines its value. Mind-blowing, right? Karl Marx spoke of the seizing of the means of production and we now have the technology to do it, without compromising the nature of competition and incentive to work.
What’s more is that the Blockchain is not just going to change the financial markets. It’s going to change everything…
The principle of Blockchain and its ability to avoid “double-spending” (with secure, verifiable transactions in cryptocurrencies) will eventually apply across the entire commercial spectrum. One example is a foundation that I’m currently working with called Ammbr, who are eliminating the high costs and bandwidth issues associated with internet connections by building Mesh Networks and using Blockchain technology to help them scale well. The foundation’s goal is to provide a fast, reliable internet connection to over four billion people around the world at a low cost, with the developing world making up their primary target market. Can you imagine every person in the world having access to the internet? Studies predict that there will be 80 billion devices connected to the internet at one time by 2025.
The average selling price for all smartphones this year will reach $314, down 6.3% from last year’s average selling price of $335. By 2018, the average price will be $267, according to the International Data Corporation. A 6,3% drop over one year and a predicted 14,9% drop in 2018. The prices of these devices are decreasing exponentially and that’s just for brand new products. It’s only a matter of time before you’ll be able to purchase a smartphone for $5. Therefore, the Internet of Things (IoT), which is the notion that everyday objects will all be connected to “the cloud” and accessed through the internet, is upon us. Soon, your shopping, your driving, your studying, your work, even opening the blinds when you wake up in the morning will be governed by smart devices.
As things move forward, it is the Blockchain that is going to keep everything in check and make sure that your privacy is safe, efficient and secure.
When you walk into the grocery store and look for that organic food product, there will be a QR code that you will scan on your smartphone and it will verify whether or not the supply chain that produced the food in front of you can be trusted. When you go to the drug store and buy your medication, you will scan the package’s QR code and it will verify that the drug has gone through adequate testing and will not cause you undue harm. When you hire an employee, you can do a background check in minutes, if not seconds, and make sure that they’re trustworthy. If you buy a house, the process of inspections and legal red tape will be cut down from months to days, or even hours. Just about any transaction you can think of is going to change dramatically, improving efficiency, cutting costs and manufacturing trust. Even in the media, the Blockchain will add credibility to our news and ensure that they are grounded in facts.
TRUST is what it’s all about. The Blockchain is about to consume every industry on the planet and, through trust, it’s going to change the world.