Blockchain: The Technology that will Change the Banking Industry

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August 2, 2018 by
Blockchain: The Technology that will Change the Banking Industry

No, it’s not big data or social media, nor is it robotics or AI — it’s Blockchain technology

The modern technology that will revolutionize the world economy has come. You’ll be amazed to find out that it’s the innovative technology behind digital money and Bitcoin, called blockchain. I think this is the future of the Internet and has already shown great promise for businesses and individuals. 

The Trouble with Double-Spending

When you send out an email or a file of some sort, you are actually sending a copy–this is called democratized information. When it involves financial assets, intellectual properties and others, sending a copy is truly a bad idea. If you send $100 it’s important that you don’t have the money anymore. Cryptographers call this double-spending which means the risk that electronic money could be used twice. We rely on big companies, like financial institutions and government, to intermediate so we can put our trust in the economy.

Third Parties, Middlemen, Intermediaries

In other words, we rely heavily on middle men to carry out business and transactions in our current economy. These middle men do an efficient job but there are still issues. First, they are centralized which means there is a good chance they can be hacked. Second, people who don’t have enough money to open a bank account are excluded from the economy. Third, the process is slow. In today’s world, you can send an email within just a few seconds but it could take several days to send money to someone in another city, and get charged a lot for it too. 

The financial crash of 2008 resulted in millions of people losing their homes, their net worth, and, more importantly, their faith in government and the current financial system. This spawned a digital currency called Bitcoin which made it possible for people to do transactions without relying on third parties (meaning Bitcoin is not controlled by any banks or government). And the technology behind that is called the blockchain. Bitcoin and the blockchain have created a way for people to do business with each other directly. No middle men. And at the same time trust developed through collaboration of cryptography and the code.

Crypto and the Code

Digital properties are not kept in a central location but is distributed throughout a global ledger that’s made with the highest level of cryptography. Each transaction is verified and published in the public ledger by a group of people called Bitcoin “miners” who solve mathematical problems that are made by mining computers every 10 minutes. These mining computers gather the transactions, or “blocks”, and turn them into math problems. Whoever solves the problem essentially verified that all the transactions are legitimate and error-free and will receive Bitcoins as a reward. Each block is timestamped and are all linked together creating a chain. If anyone tries to hack a block, he would have to hack the entire chain. Not only that, because bitcoin operates on a network, the hacker would have to access each computer simultaneously that is located all over the world using the highest levels of encryption. If he misses one single computer somewhere in the world, that computer would just re-upload the previous version of the blockchain on the network, and this chain would continue all over again. That’s basically how blockchain works. 

Equality in Blockchain

The Rube Goldberg machine can serve as a metaphor for the financial industry. It does really basic work for a very complicated machine. When you use your credit card in a store, a bit stream will go through various companies. Each company receives it and then a settlement occurs. Whereas in blockchain, payment and settlement are the same. Hence, quicker transaction times. Banks and financial intermediaries are in turmoil wondering if this is going to replace them. When the Internet first came about it brought wealth but not shared prosperity because social inequality exists. It’s the root of all the hatred, fanaticism, xenophobia in the world today. Could there be a solution to address the issue of inequality? I believe the answer to that is to redistribute wealth and spread it out. But could that be done? There are different ways, I think, to be able to describe this. 

One, more than half of the world’s population have land titles that are dubious. Say you have a small land in Honduras and then a new president comes to power and claims that he owns that land. Apparently this problem happens in many places around the world. As a result of this, various companies are now working with the government to place land titles on the blockchain. If they are on the blockchain, it will be permanent. It will be very hard to hack it.

Two, many people think that ride-sharing and short-term lodging apps are sharing the economy. This concept is really innovative and helpful because people come together and share what they have. However, these companies are not really “sharing”. They just put together these services and market them.

Three, developing countries get the most of their financial inflows from remittances (money sent by overseas workers to their home countries) not from corporate investment or international aid. The remittance sector alone is $600 billion a year and it continues to grow. However, these workers who are trying to provide for their families are getting ripped off by paying heavy transaction fees.

Four, data is the most powerful asset in this information age we live in. And every one of us creating data everyday which is collected and form a virtual version of you. FaceBook and Google, for example, own a lot of data on you: they know what places you like to visit, what food you like, how you talk to people, etc. However, you don’t own this virtual data and that’s where the problem is. Today there are some companies trying to develop an identity that will be put in a black box which an individual can own. These black boxes move along with the owner and can be useful to connect you directly with the correct buyer or seller or a good or service. In most transactions, the seller doesn’t need to know who the buyer is, he just needs to know that he’s getting paid.

Five, there are a number of content makers who are not compensated fairly due to the fact that the system for intellectual property is not properly established and regulated. For example, 30 years ago in the music industry, a songwriter would write a song and earn thousands of dollars in royalties, but today they would be considered lucky to earn just $40. 

People from different industries will be able to get fair compensation using the blockchain and without the need for a middleman. There are a number of problems that could be solved by one solution: prosperity created by people without inference by central authorities or technology. Technology has once again come up with an opportunity to equalize the economic power around the world and solve the world’s most challenging problems if we will just give it a chance.

Further reading: Cryptocurrency and the Future of Money
4 Things Every Newcomer Needs to Know About Cryptocurrency

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