Blockchain: The Future of Economy
Imagine a financial system without a centralized authority to govern your transactions… where your identity & money is entirely yours, and can be transferred within a few moments of executing a transaction.
Many large organizations are looking to blockchain to improve on the current drawbacks in the financial system. From supply chains to transactions and governance, distributed ledger technology could be the next breakthrough in database technology.
Fiat Money
Today, the overwhelming usage of fiat currencies might suggest that cryptocurrencies are volatile, and more prone to worthlessness. However, the dollar bills we rely on in our daily lives are arguably more volatile than any crypto-currency. Fiat money has no intrinsic value, and its value comes from the confidence that the people have in the government’s ability to maintain that money. Fiat currency isn’t backed by any valuable commodity. Unlike fiat money, because of Ether’s ability to pay for the execution of transactions in the future, it can also be considered a commodity, like fuel. So it has an additional intrinsic value.
Throughout history, fiat currencies have fallen. Part of the reason the United States has been able to sustain this system is because the global economy has reserved the US dollar for trade, therefore funding an entire country’s consumption. This risk comes with the massive amounts of debt that the United States holds. The monetary base has expanded by nearly 3,000 billion within the last 10 years, therefore stamping the USA as a country with high debts, and low ability to repay those debts. Furthermore, the dollar has lost nearly 92% of its value since the US Fed was formed. This could be the signs of a currency on the brink. Considering the tumultuous history of ever fiat currency preceding the US dollar, the possibility of a collapse is inevitable.
A good monetary system is based on real wealth creation with a stable asset based. For now, such assets include gold, natural resources, land entitlements. But, what if crypto-currency could be considered such a rigid, reliable asset?
Cost
As IBM points out, blockchain technology solves a number of problems that have hindered the development of the Internet of Things. These can be summarised as: cost, trust and transactions. For IoT firms, the cost of supporting billions of smart devices will be substantial. In place of large server farms, blockchain allows IoT firms to outsource infrastructure supply to the places with the lowest costs.
Payments, especially international payments, can be costly. Paying for the middle-man between international transactions can be outrageously expensive. Blockchain technologies plan to decrease the costs associated with payments by allowing parties to interact directly, eliminating the need for a mediator, such as a bank. In addition, having a record of all past payments is useful to auditors and regulators. A universally recorded world state of payment information can decrease the number of payment disputes, ensuring trust and security.
Security
The encryption used on blockchains is industry standard, open source, and has never been broken. Their ledgers are what is known as ‘cryptographically auditable’, which means you can be mathematically certain that their entries have not been forged. The records on the blockchain are also very difficult to change, requiring something called the 51% attack, meaning more than half of the nodes on the network have to approve to a change on the chain. This is extremely unlikely to occur, since the nodes are incentivized to keep information authentic and consistent on the chain.
It’s also near impossible for hackers to make the system “go down.” Because the contents of the database are copied across thousands of computers, if 99% of the computers running the chain were taken offline, the records would remain accessible and the network could rebuild itself.
One of the biggest problems with online identity is the risks that come with centrally managed data. Numerous high profile cases of companies losing vast quantities of data to hackers underlines this issue. Chipotle has had 15 million credit cards stolen by hackers. Dell has also admitted that hackers may have stolen personal data from their servers. The holy grail of online identity is for it to be verifiable without requiring users to give up control of their data.
Decentralized technology poses a threat to all sorts of private vested interests, especially in developing economies where cash is only useful in local transactions, people don’t have access to bank accounts, and cyber security is weak.
Blockchains can also be utilized to track the supply chain of products. Every time a product changes hands, the transaction could be documented, creating a permanent history of a product, from manufacture to sale. This could dramatically reduce time delays, added costs, and human error. For example, you could track the supple of a fish: where it was caught, its size, its age. You could follow its journeys from the ocean to the grocery store, and you can trust that the blockchain is true and correct. You could cross check purchase orders, change orders, receipts, shipment notifications, serial numbers, etc. There would be complete transparency about products.
“Insurance providers need an efficient way to process claims, verify that an insurable event (such as an accident) actually occurred,and provide customers with fair and timely payouts. With automated insurance claim processing, policy conditions are written into a smart contract stored on the blockchain and connected to publicly available data via the Internet. Whenever an insurable event occurs and is reported by a trusted source, the insurance policy is automatically triggered, the claim is processed according to the terms of the policy specified in the smart contract, and the customer is paid.”
How Large Companies are Utilizing Blockchain
Industrial and Commercial Bank of China is creating a patent filed by ICBC describes a way to use blockchain technology to verify digital certificates instead of a trusted central authority.
Nestle, the Swiss food-giant is now part of a consortium working with IBM to remove unnecessary middlemen from the way they ship goods.
ING Group, ranked number 56 on the Global 2000, ING Group has open-sourced software solutions designed to help protect a user’s identity.
Apple has filed a patent for using blockchain technology to timestamp data.
Other large companies venturing into Blockchain include Bank of America, Wells Fargo, Ford, Santander, Disney, Facebook, Oracle, Samsung. Many are using blockchain for supply chain management.
Blockchain could alter the way transactions between companies and consumers are conducted. Blockchain has proven to be cost effective, secure, and reliable. Considering the companies adopting blockchain, it could soon become industry standard.
If you would like to learn more about Blockchain Technology, you could read this article:
