Blockchain — So that means Cryptocurrency and isn’t that risky?
Why does it exist?
There is a myth that Blockchain means cryptocurrency, or more specifically Bitcoin. Fake news, but understanding its past, explains the myth. Knowing what it does shows how it can benefit people globally in a faster, more secure and open world.
In 2008 a person (or persons) under the name of Satoshi Nakamoto released a whitepaper describing the concept/vision of peer-to-peer electronic cash. Bitcoin was the first implementation based on the whitepaper. All of this new work is built upon earlier (failed) attempts at cryptocurrencies carried out in the 80s and 90s, but now we have systems that will allow it to succeed.
The Bitcoin concept needed a secure digital infrastructure that could record important information in a public arena that doesn’t allow removal. In the peer-to-peer open world, this demanded that it had to be trusted, date and time-stamped, transparent and decentralised (peer-to-peer).
Blockchain is the realisation of that infrastructure. Without it, Bitcoin could not exist but Blockchain is more than just a vehicle for Bitcoin. As Don & Alex Tapscott put it “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
What is it?
Sally Davies, who writes for the Financial Times wrote “blockchain is to Bitcoin what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.”
In old language it is a ledger, you can call it a database if you prefer, in which you record transactions of anything you like. The key difference is that instead of being on a single (or multiple) private server(s) it is distributed across a massive shared network. It is that “distribution” or “decentralisation” that traditionalists worry about because there is a fear that being public it can be tampered with.
David Gerard wrote: “It’s an accounting ledger that you can only add to — you can’t cross anything out … the system is tamper-proof, thanks to authentication with what are called cryptographic hashes — long strings of unique numbers that help verify that the data being shared is consistent.”
This is because, as the name implies, transactions are stored in blocks which are linked together using specially created hash keys to know where the next element of the chain is stored. If any single bit of that blockchain is changed then all the hashes in that chain become invalid. This is how consistency and integrity are maintained.
Public chains are maintained across a number of key servers on the Internet, each having its own copy. This means that even if one of the servers is attacked and a blockchain is modified it will be picked up as it will now differ from the other copies on the other servers. So it is safe from single corporation corruption and attacks.
So basically, it is a tamper-proof record of transactions existing across multiple systems across multiple locations owned by different organisations. It is this that makes it unprecedented in the financial world.
As with all new technologies, it comes with its own language and dialect giving it a rather mystical geeky overtone. But strip the magical words away it is simply the next step in the evolution of storing and sharing information in a safe secure way using the Internet as the transport system.
If it is that good why is not everyone using it use it?
Inherently we all trust what we know and mistrust what we don’t know. As technology and its use grow, we will know more about its limitations and strengths.
Blockchain is based around transparency and cryptography (yes, I am simplifying it here). Transparency allows people to see and verify using rules that form the data, and the cryptography mechanisms aids data integrity ensuring it is not tampered with.
As with many areas of finance, regulation aids trust, but regulation has always lagged behind innovation. This is why Arkadia Lending is taking the positive step of seeking access to the FCA sandbox to test its use of digital technology.
Blockchain requires companies to maintain copies of the Blockchains they are involved with. This decentralised use of data across multiple systems is a strength but it also has weak spots. Immutability has its cost. Data storage becomes very large. As it grows, transactions get slower. Remember, all the copies across thousands of locations have to be updated. This needs high-speed communication, lots of computing power and lots of electricity. All expensive.
Arkadia Lending addresses all these issues in its design and implementation.
Why is Arkadia Lending using Ethereum?
In order to produce an efficient, malleable solution that will disrupt the lending system in growing markets, the issues raised in the previous section have to be addressed.
This is where Ethereum comes in. It is a public blockchain but can record assets other than currencies. The ability to manage loans and contracts are inherent to the environment. It was established to handle smart contracts which can have criteria set and be automatically processed.
Established Blockchain implementations use complex algorithms needing a lot of electricity and computing power. Companies will find this slow and expensive as their demands grow. This is known as Proof of Work (PoW). The next generation, addresses the issue, using a technique called Proof of Stake (PoS) [subject to a different article]. Ethereum’s roadmap to be fully PoS works alongside Arkadia Lending’s growth plans, maximising efficiency and keeping costs at a minimum.
Using public blockchains also affects speed and cost. This is why Arkadia Lending has produced algorithms and functions using private blockchains for key sensitive data and public blockchains to maintain transparency and verification. Any unauthorised modification to data on the private or public side will flag up an issue which can and will be addressed
Ethereum allows us to implement processes and procedures which mean that we can put in place mechanisms that allow us to be regulated by the FCA.
What is Arkadia Lending using Blockchain for?
Arkadia Lending aims to produce a socially responsible, impactful, cost-effective way for people and organisations to obtain loans and lenders to see how their investments are benefiting others.
Our use of a digital platform, secure immutable data and removal of middlemen provide lower cost loans in growing markets and better returns and accurate feedback on social impact to lenders. Arkadia is the first and only platform to offer this kind of investment opportunity. This means you can choose from a huge spectrum of businesses, selecting exactly the right ones to meet your impact investment requirements.
Who else uses it?
Blockchain technology is changing the way we can secure data and know the details can be trusted. This is why organisations such as JP Morgan Chase, Credit Suisse, Scotiabank and Mastercard are also investing in how they can use the technology to benefit themselves.
Arkadia Lending is proud to be bringing the ability to have ethical lending at its core. We aim to support viable businesses in emerging and developing countries. We will all see the results, where whole communities and societies will benefit.
Kerry Frater is Co-Founder and CTO for Arkadia Lending (www.arkadialending.com)