Blockchain is the key to financial democracy [Video]

Imagine – for a moment – somebody building a brick wall.

First, they'd start with the foundations.

A thick layer of concrete and reinforcement leveled off and treated with a damp course onto which somebody will lay the first layer of bricks.

Then the first layer of mortar is laid. Onto this, the first bricks are coated with mortar along the sides and top and sunk into the initial layer on the foundations.

Next, another row of bricks, set into the mortar, and again laid on top of the next layer – slightly offset.

One by one, layers of bricks are placed on top of one another to create the wall.

This is precisely how the blockchain works in digital form.

Each brick represents a block in the chain.

Each brick is a part of the wall – but separate and isolated from the surrounding bricks – and the rest of the wall - by mortar.

The mortar acts as both an attractor and a repellent to the bricks. It supports them and stabilizes them, but it also keeps them apart.

Also, a skim coating is applied to the bricks’ face to protect them against “electronic weather” or “cyber attacks” as they are more commonly known.

As an analogy – this about this close as you're going to get to understanding the blockchain in physical terms rather than technological terms.

In reality, the blockchain is a sequence of code. This code is kept separate from the other blocks of code by encrypted “mortar.”

This mortar will only allow certain other bricks to interact with the brick it is protecting.

It will also not allow anything or anyone access to that brick unless they have the means to get through the mortar with a programmed “electronic hammer and cold chisel.”

Without the right access code, password, or encryption, it wouldn’t matter how hard you smashed on the mortar; you wouldn’t be able to break through to the brick.

As we’ve seen over the last few years, in countries worldwide, and even in the recent US election, people are losing faith and trust in the forms of democracy that exist in voting and election systems.

The same is true of financial fraud and the security of investments and money.

Blockchain technology Is a 21st-century answer to this problem,

The most famous experiment, so far, using it has been with the birth of cryptocurrency – and, more specifically, Bitcoin.

Up until Bitcoin went public, the blockchain was mostly a theoretical idea.

It led the way to a series of ideas about how a blockchain could be harnessed to send what are known as smart contracts and other classified or highly confidential information, or mediums of exchange, i.e., electronic cash.

People were able to buy their “bricks” and then put them onto the foundations of their “electronic wall” using their mix of “digital mortar.”

In this way, information or electronic cash could be sent anywhere in the world, to anyone, in complete confidentiality, with no need to route the transaction through third parties like banks, lawyers, or even governments.

Ethereum was the first digital platform to put across the idea of a crypto platform being used for something other than just cash.

This was based on the idea that every new transaction added to the blockchain left a “digital footprint” - a bit like putting your hand into the wet mortar and leaving a handprint there that cannot be erased, broken up, or removed.

In “crypto speak,” these digital footprints are called “hash.”

When a new block is added to the existing blockchain, a new hash is generated from the previous chain, the past hashes, and the new block. In effect, using the wall analogy, new handprints – maybe, cat paw prints or crosses made with a trowel are layered onto the original handprint.

This makes it impossible to duplicate or reconstruct. It remains the only and original layer of “electronic mortar.”

The person receiving the information must have the key which perfectly matches the hash value of the mortar to be able to gain access to that specific “brick,” or block.

There is, of course, a cost involved in computing the hash value, and this has to be taken into account – as does buying the “brick” in the first place – not to mention storing it somewhere safe.

The reason that there are costs involved is that nobody would maintain the security of the blockchain without an incentive.

The computation required to produce a hash and the prefixed number of leading zeros needs a combination of skill and luck.

As an example, the computational time for a bitcoin block is around 10 minutes. This is to generate a random number – called nonce - and this is added to the “brick” – or block – to make the hash with the required attributes.

The people generating and verifying the hash are known as miners and the operation of getting their nonce and hash accepted after being broadcast publicly is known as “Bitcoin mining.”

The combination of scarcity and security, coupled with portability and instant access - all without interference from third parties- is an unbeatable combination.

It enables fully encrypted peer-to-peer transactions.

So how does it democratize?

As an example, imagine, for a moment, you have had a few problems and have been made bankrupt. This precludes your financial activity for a period of time – but you have an opportunity to start a business and sort yourself out.

You can’t approach the normal institutions for loans or guarantees or any other form of financial services.

By using blockchain technology you can circumvent the normal channels and go straight to sources willing to lend to you - with no reference to banks, credit checks, or other means of checking up on you.

The lender, in turn, is free to take a chance and loan you the money directly without anyone else needing to know - no regulation or restrictions because the transaction is peer-to-peer.

No outside parties can access any of the smart contracts you initiate with the lender – and no outside institution can impose penalties or additional charges to the arrangements that you made.

Of course, there is a dark side - and this hindered the growth of cyber solutions like blockchain In its formative years because of its use by criminals on the dark web to pay for drugs and other uses which we won’t go into here.

At its best, blockchain technology gives financial power back to individuals, rather than to huge financial conglomerates.

New merchants and start-ups are not always able to secure access to credit card hookups because they have no track record. In addition, those that are granted the facilities often find they are paying over the odds until they reach a certain turnover or have become established.

Instead of merchants being charged between 2% and 3% for a credit card transaction, BitPay, for example, allows immediate conversion of a virtual currency into the local currency and delivers it directly into the merchant’s bank account for a fee of around 1%.

The blockchain enables this transaction to be done between just the three parties involved, in complete security, and with no danger of any fraudulent payments.

We are still in the early stages of blockchain technology – but the brightest brains in the world are working on this - and the future, for all kinds of financial transactions – from shares, to real estate and beyond will be transformed by “electronic bricks and mortar.”

 

---