Blockchain will radically transform the economy

Cryptocurrency
Cryptocurrency (Photo credit: Art Rachen)

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The technology likely to have the greatest impact on the next decade is blockchain. We believe that this is now the next generation of the internet, and blockchain holds a vast promise for every business.

For the past few decades, we have had the internet of information. Under this regime, when you send an email or a word or pdf file, you are not sending the original, you are sending a copy. While that is ok for those types of items, when it comes to assets – money, stocks and bonds, intellectual property etc.  – sending a copy is a bad idea. If someone sends you $500, it is extremely important that they do not still have the money. It is important that they cannot send that same $500 to someone else. That is why we rely on middlemen such as the banks, governments, and credit card companies to establish trust. These middlemen perform all the business and transaction logic for every kind of commerce, from authentication identification of people through to clearing, settling and record keeping. Overall, they do a really good job but there are growing problems.

To begin with, they are centralized, this means that they can be hacked. Secondly, they exclude billions of people from the global economy. For example, people who do not have enough money to have a bank account. Thirdly, they slow things down. It takes a second for an email to go around the world, but it can take days or weeks for money to move through the banking system across the city. Not to mention that they take a big piece of the action, 10 to 20 per cent just to send money to another country. But the biggest problem is that, overall, they have appropriated the largest of the digital age asymmetrically. The have created wealth but we have growing social inequality.

After the 2008 crash of the financial industry, an unknown or anonymous person or persons named Satoshi Nakamoto created a paper where he developed a protocol for a digital cash that used an underlying cryptocurrency called bitcoin, and this cryptocurrency enables people to establish trust and do transactions without a third party. The underlying technology is blockchain. As a result of blockchain, people everywhere can  transact peer to peer and trust is established not by some big institution.

So how does this work? Digital assets, from money to music and everything in between are not stored in a central place, but they are distributed across a global ledger using the highest level of cryptography. When a transaction is conducted, it is posted globally across millions and millions of computers. Around the world, there is a group of people called miners (Bitcoin miners). They have massive computing power at their fingertips, 10 to 100 times bigger than all of Google worldwide. Every 10 minutes, a block gets created that has all the transactions from the previous 10 minutes, then the miners get to work trying to solve some tough problems. The first miner to find out the truth and to validate the block is rewarded in digital currency. The key part is that the block is linked to the previous block in the previous block, to create a chain of blocks and every one is time stamped (hence the name blockchain). So, if someone wanted to go in and hack a block, they would have to hack that block plus all the preceding blocks, the entire history of commerce on that blockchain, not just on one computer, but across millions of computers simultaneously, all using the highest levels of encryption.

To understand what a radical change this is going to bring, let us look at one aspect of the financial service. You swipe your card in a store and a bitstream goes through a dozen companies and three days or so later the settlement occurs. Well with the blockchain, there would be no settlement because the payment and the settlement are the same activity. Using blockchain will also eliminate the wait time for remittance as it will cut out the middlemen.

So, now, all around the world, the financial industry is in a big upheaval about this, wondering, can we be replaced? Or how do we embrace this technology?

Micromoments is a technology company to the core, born out of a strong desire to change the narrative about software development in Jamaica.

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