There are seemingly rather few commentators who understand the “real economy” (encompassed by national growth rates and employment rates), the “fake economy” (the 1%-dominated FIRE sector: finance, insurance and real estate) and crypto currency. I have seen top commentators make the most fundamental errors regarding crypto since it began a spectacular boom in April.
And then there is a fourth axe: socialism. Even fewer Western commentators understand socialism than crypto. I think I can make a fair claim that I understand enough of all four to make decent daily journalism in all areas.
My bitcoin knowledge is the weakest, but it sure has been a fun couple weeks learning! I got turned on to crypto while searching about China’s new gold-yuan-oil exchange, which is a crippling blow to the domination of the dollar and the “exorbitant privilege” of the US to finance their deficits. Nixon took the US off gold in 1971, but the Saudis put the dollar on oil. Now that China is going to allow countries like Iran, Venezuela and Qatar - which alone comprise a huge chunk of the world’s known oil and gas reserves - to cut out the dollar, it is a whole new financial and political world. Very few bitcoiners I’ve talked to know about this development, but this is all related, certainly.
To augment my bitcoin knowledge I interviewed Manuel Valente, the director of the one brick-and-mortar store for bitcoins in Paris - Maison du Bitcoin. The timing couldn’t have been worse: it was just one hour after China announced that all 3 top bitcoin-for-yuan exchanges will be closed by September 30. Bitcoiners will likely remember this day as “Black China”, because bitcoins dropped 40% in 24 hours.
I pictured an office in chaos, and expected he wouldn’t have time to see me.
And yet he could not have been more unperturbed and genial. That should tell you something. He even gave me - a journalist with the credentials of “an Iranian government TV and leftist/anti-imperialist reporter” - more than an hour even though bitcoins were in the middle of a bloodbath.
Confirmed yet again: China knows what they are doing
Expecting an anti-China tirade, I asked him: “What’s your greatest fear?” His answer was “ICOs”.
An ICO is just like an IPO – it’s a way for a new crypto-currency to publicly ask for money. It stands for “Initial Coin Offering,” and the coin functions the same as a stock.
What this means is that Valente approved of China’s first rattling decision earlier in the week: to ban ICOs. Many short-term investors interpreted this as “banning all bitcoins”, but those were the know-nothing, money-grubbing speculators.
The problem with ICOs is that, thanks to the technological advancement provided in February by what is now the #2 bitcoin, called Ethereum, all someone has to do to create a new crypto-currency is to add just 100 or so lines of code to Ethereum and voila. So it is too easy, and there are now perhaps 2,000 coins which aren’t Bitcoin (capital B, and the industry leader by far). And these are all totally unregulated. That means some of these new bitcoins which have been rushed to market are total scams.
“We’re in 1998,” Valente said, referencing the dot-com boom, which produced spectacular flame-outs like pets.com. “It’s going to be a bloodbath for ICOs.”
And it should be. “95% of all these new ICOs can already be done with Ethereum,” said Valente. If your product provides no technological or philosophical advantage, there’s no reason the public should need you. Some people will heed Valente’s advice – others will insist they have found the 1 new coin which will hit it big and make them billionaires. But you better have done a lot of research….
Valente suggests normal people should invest only in Bitcoin and Ethereum. “There’s space for maybe 5 or 10 cryptocurrencies,” he said. And that makes sense: you have Visa, MasterCard, Discover, and a few others which are widespread…and then some other cards that are predatory, usurious cards which should be banned.
The US Securities and Exchange Commission is headed in the same direction as China: they are looking at ICOs, seeing their similarity with IPOs, and warning that they are pump-and-dump scams.
The news of shutting down the top 3 bitcoin-yuan exchanges was the second, bigger shock. Crucially, China’s international exchange and a bitcoin mining pool are unaffected. What it means is that Chinese bitcoin holders will not able to, as of September 30, get their yuan out. That money stays in China.
That makes the Chinese government correct yet again: Valente estimated that 99% of bitcoin holding in China was purely speculative - they are not using bitcoins very often commercially yet, like Japan, South Korea, and others. And that makes sense: a socialist country like China has (thankfully) very few opportunities for investment for those who hold a lot of capital - so you can see how bitcoins were especially appealing there. Speculation and amassing capital is a no-no in socialism, but China is not so tough on this as they used to be.
However, what they are tough on is capital flight to foreign nations, because that is a major problem for developing countries. If money leaves the country, how can poor countries rebuild? For many years the nascent South Korea criminalized sending capital out of the country…and this forced domestic investment is how South Korea got to be a top 10 global economy. Whereas African nations, for example, whose leaders hold their money in Switzerland…they have achieved undemocratic but superbly capitalist results.
So pushing unregulated bitcoin usage in wealthy countries should be encouraged, because then bitcoins can function as an effective way to redistribute wealth. Bitcoins can be an amazing pro-socialist and anti-imperialist tool, but I don’t have much space for that here.
China is perfectly correct to suspend the outflow of an increasingly large and popular form of wealth, and to investigate ways to regulate to make sure The People aren’t harmed. That’s simply good governance.
Bitcoiners hate the Chinese right now, but the Chinese people owe their government a debt of thanks.
There are simple, obvious compromises on the question of how to regulate bitcoins
There is only one genuine problem: how to regulate the interface between the bitcoin and fiat/paper worlds.
It is not difficult: bitcoins simply must be declared and taxed. Voila.
Some 15-year old bitcoiners are probably reading “1984” while in the totalitarian setting of high school, and they are dreaming that they can get around this. They are wrong – that would be criminal and anti-social. The bitcoin community must realize that they cannot remain forever anonymous because at the point of interface - cashing out your bitcoins - this simply must be accounted for under every society’s moral laws.
What bit coiners can take comfort in is this: Governments must realize that the bitcoin sphere itself must remain unregulated. The protocols cannot be tampered with…the geeks have already won.
The US and their allies are also dreaming if they think they can stop the flow of bitcoins inside the cyber sphere. That’s why bitcoins are an amazing way for countries like Iran, Venezuela and other targets of American imperialism to avert cruel, murderous sanctions. Governments truly can’t touch the bitcoin netherworld – that horse is too far out of the barn, and the barn is the size of the entire globe.
However, at the point of interface – the moment of sending bitcoins out…well, governments can easily sanction people on the individual level. So, everyone’s fascist/anti-fascist dreams aside - bitcoins ultimately will be just like any other commodity. Sadly, they can still blockade Iran, Cuba, Palestine, etc. But they can’t do that just yet, so send the Irans and the Cubas of the world some bitcoins, you early adopters!
Once we all learn more about bitcoins, people will realize that these are the only solutions.
But I suppose the alternative to good sense is always possible: protracted war between nations and cybergeeks, with varying degrees of success. Such a fight means bitcoin will sill certainly not be stopped in the next week, or year.
And accept this as fact as well: If capitalists can create fiat havens in Luxembourg, the Isle of Man and the US state of Delaware, surely some nation will gladly become a bitcoin haven. That means bitcoiners can go there to put in bitcoins and take out dollars, rubles, pesos ,etc.
Forget about all-or-nothing scenarios - think short-term, like 50 years
This is one of the biggest problems when discussing bitcoins with anybody: People love to take the bitcoin question to its extreme conclusion.
Look: there is no chance that we are ALL going to be making ALL our purchases in ONLY bitcoins next month. The day when bitcoins replace all currently-accepted forms of stored wealth - paper money, gold, silver, Monet paintings - is roughly the year 2525, I’d say, so stop being needlessly argumentative.
We must realize that all these forms of wealth - gold, silver, oil, real estate, stocks, Fabergé eggs, etc. - have their place…and now you must add bitcoins to that very long list.
Look at it this way: If bitcoins ever even represent just 3% of all merchant sales…bitcoins will have a trillion dollar market valuation or more.
And that’s why, even if China does totally ban bitcoins, they can absolutely survive losing the Chinese market.
Bitcoin users are already global: Russia, South Korea, Japan and others have all said that bans should not happen and that regulations are just a few months away. Bitcoins, like the discovery of a 2nd New World, are going to have major geopolitical consequences, but I will get into that in future articles. But stop thinking that everyone is going to react like China: countries are different, and they will have different approaches.
China is certainly a bit annoyed at bitcoins, which threatens to undermine their brand-spanking new gold-backed order which we leftists have all been waiting decades for China to impose. It should be no surprise that these two drastic Chinese state decisions come so close to one another – China wants a Petroyuan and yuan-dominance.
But back to the survival of bitcoins: Yes, it would hurt to lose the Chinese market, but it is absolutely not a death blow, and the fact that bitcoins bounced back at the $3,000 mark proves this fact.
Anyway, China has already “banned bitcoins” several times, only to backtrack; China is the biggest global holder of bitcoins; I would bet good bitcoin that China is going to do what they should - freeze the situation, come up with regulations, and then get back into bitcoins. That’s what history has proven and that’s what they should do - protect the Chinese.
I would bet a smaller amount of bitcoin that China is crashing the price to buy more bitcoins, further protecting the yuan’s dominant future. Considering that China’s decision came at the same time as JP Morgan Chase’s Jamie Dimon (America’s favorite banker) declared bitcoin to be a “fraud”, dropping the price further, you have to wonder if they all aren’t in it together? We leftists hope not, China….
So, to repeat, bitcoins don’t need to wipe out the competition to be a good investment - they just need a bit of acceptance and the resulting stability that entails.
So what is stability? Well, nation-states will take forever to figure out bitcoins and the results will not be uniform. So what’s the other dominant sphere besides national governments? High finance.
Bitcoin bonds have debuted in Japan. The Chicago Securities Exchange is months away from debuting a bitcoin future. Clearly: high finance is getting on board. At Davos 2016, a Financial Times reporter asked the 1% banker-dominated audience if they were on board with bitcoins and only 1/3rd of them raised their hands. Guess what - 1/3rd is actually quite a lot in this context! One-third is enough to do what is currently happening: give bitcoin enough of an “official ok” from high finance to become a permanent financial fixture.
The Eurozone’s endemic failure and looming crisis will forever legitimize bitcoins
But nothing “backs” a bitcoin!
Well, wake up: When the European Central Bank buys 60 billion euros of bonds every month in Quantitative Easing, that’s not backed by anything like gold or silver; and they aren’t even printing the paper “gold”; they are just tapping on a keyboard and, voila.
So invisible money is already here.
Invisible money is not the problem – the problem is that it’s not being loaned down to small and medium-businesses; it’s not paying off your overvalued mortgage; it’s not creating jobs and improving the productivity and efficiency of the “real economy”…it’s going to the 1% for stock buybacks and the 1%’s phony rentier FIRE economy.
Neoliberalism and austerity have created and kept the world’s largest (and least democratic) macro-economy - the Eurozone - the most fundamentally unstable: it IS the global weak point in 2017.
Their spree of free money - which has only ballooned real estate prices and stock markets, while the mainstream media celebrate anemic 1.5% growth year after year, turning an ignorant eye to the unemployment crisis AMID labor code rollbacks AND THE decrease in purchasing power caused by the “printing” of more money - has a price, and it is about to be paid.
To put it quite simply: If the ECB’s Mario Draghi says this October, as he is expected by many to do, that Quantitative Easing will start to be tapered off…bitcoin has won.
Because I am a socialist, I am certain about what will transpire:
As soon as the high finance 1%-ers are no longer being given “free money” by QE…they will go back to doing what they did before open-ended, unlimited bond-buying: squeezing the Eurozone’s bond markets. Lacking any sort of socialist solidarity, at the mere mention of “tapering” in October, German bond rates will creep up to just 2-3%. And then France’s will rise a couple points higher, and then Spain and Italy will be back at the unsustainable 7%, and that’s when investors smell blood and want to pave the way for the Troika like in Greece. That’s where we were in 2012 and QE started.
Well, guess what? Absolutely nothing has been fixed since 2012! Why? Capitalist, and not socialist, management of the economy. What did you expect would happen - that capitalism got religion and would start doing the right thing?!
Again, instead of improving the “real economy”, bailouts and QE have done nothing for the world inhabited by the 99%. So the crisis has only been postponed, and not solved, in truly the worst way possible.
Therefore, when the crisis does hit, money is going to flood into the safe (or just “safer”) haven of cryptocurrency. Take that to the bank. Or rather take it out of the bank.
And here’s the thing: If Draghi postpones “tapering” – and the new Chinese exchange and spectacular booming of bitcoin since April make it more likely – the Eurozone is simply postponing their crisis a few more months. That’s just capitalism: Marx proved it lurches from one crisis to the next, with inequality increasing each time.
You can’t print money forever.
What many fail to realize is that the reason bitcoins exist is EXACTLY BECAUSE of this fiscal charade, which began around 1980 and which crashed in the Great Recession.
There is a reason why some (allegedly) now-underground Japanese tech-head waited until October 2008 to unveil his White Paper on bitcoins/block chain: it was the height of the great crash. He wanted maximum impact, reaching minds finally cracked open by the latest, inevitable, deadly crash in Western capitalism.
Secretly embedded in the very first block of bitcoin code - Block Zero - was this: A London Times front page with the headline: “Chancellor on Brink of Second Bailout for Banks”.
Wake up!
Too many think that we non-economists/non-government officials are too stupid to get economics - we do. Bit coiners aren’t all holding a PhD in mathematics, and way too many have been swayed by adolescent American libertarianism instead of solid, sweating, vibrant, Socialism, but we know what the hell has been going on for nearly 4 decades. Everybody does, in fact.
And we are pissed.
And that’s why they created bitcoin.
And that’s why I’m investing and you should too. Giving a dollar to them is one less in the hands of the high finance psychos who let grandmas die on gurneys in the hallways of public hospitals gutted by austerity.
If I lose it: to hell with it. It’s a donation to the cause.
But I’m going to get my money back (I sure need it): Most of the world has not yet realized that bitcoin rests upon a technological advancement (high-speed computing) combined with a revolutionary philosophy (block chain/the Nakamoto consensus (a distributed consensus algorithm). Bitcoin is simply block chain applied to the financial sphere.
Block chain is the big deal – NOT bitcoins. It will be applied to many other fields and revolutionize countless areas. Indeed, this IS the dot-com boom: block chain is going to change the world like the internet did.
We are only just seeing the results today.
Watch this space - there are simply too many astoundingly positive aspects for open-minded left-wingers when it comes to block chains and bitcoins, yet nobody is talking about it yet.
Buy in - hold.
Bitcoins will be your bailout.
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
APPENDIX Jesus Cedeño is a doctor-educated cryptocurrency expert and enthusiast with a background in data & statistics from the University of Alcalá. He was a professor of Biochemistry since 2001 and Chief of the Department of Physiological Sciences of the Universidad de Oriente School of Health Sciences since 2016 where he initiated local research projects into Glycemic Index/Loads of local foods, Beta-cell dysfunction in the local adult population and epidemiological behavior of insulin resistance risk in school-age children. Around 2015 he began applying his love to data & analysis toward blockchain and crypto with the mission of making crypto content more digestible for the average user. Jesus just finished writing “The Ultimate Beginner’s Guide to Blockchain ” (https://www.cryptocoinsociety.com/what-is-blockchain/) that covers pretty much everything someone new to the crypto scene would need to know. So we are happy to oblige, hopefully benefitting our tech audience and Jesus, for his generous contribution.
Below we offer some detailed explanations of what this new Blockchain technology world is all about.
First consider this article by Jesús Cedeño, an expert on Blockchain, who has kindly contacted us to advise we insert an update on the material we previously posted. Jesús boasts an impressive background:
What is Blockchain Technology? A Step-by-Step Guide For Beginners
What is Blockchain Technology? A Step-by-Step Guide For Beginners
Click image for best resolution
An in-depth guide by BlockGeeks
Is blockchain technology the new internet?
The blockchain is an undeniably ingenious invention – the brainchild of a person or group of people known by the pseudonym, Satoshi Nakamoto. But since then, it has evolved into something greater, and the main question every single person is asking is: What is Blockchain?
By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally devised for the digital currency, Bitcoin, the tech community is now finding other potential uses for the technology.
Bitcoin has been called “digital gold,” and for a good reason. To date, the total value of the currency is close to $9 billion US. And blockchains can make other types of digital value. Like the internet (or your car), you don’t need to know how the blockchain works to use it. However, having a basic knowledge of this new technology shows why it’s considered revolutionary. So, we hope you enjoy this, what is Blockchain guide.
What is Blockchain Technology?
Don & Alex Tapscott, authors Blockchain Revolution (2016)
A distributed database
Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.
Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
To go in deeper with the Google spreadsheet analogy, I would like you to read this piece from a blockchain specialist.
Blockchain as Google Docs
“The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient, and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes because you are locked out of editing it until the other person is done with it. That’s how databases work today. Two owners can’t be messing with the same record at once.That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again).With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people.
Imagine the number of legal documents that should be used that way. Instead of passing them to each other, losing track of versions, and not being in sync with the other version, why can’t *all* business documents become shared instead of transferred back and forth? So many types of legal contracts would be ideal for that kind of workflow.You don’t need a blockchain to share documents, but the shared documents analogy is a powerful one.”
William Mougayar, Venture advisor, 4x entrepreneur, marketer, strategist and
blockchain specialist
Blockchain Durability and robustness
Blockchain technology is like the internet in that it has a built-in robustness. By storing blocks of information that are identical across its network, the blockchain cannot:
- Be controlled by any single entity.
- Has no single point of failure.
Bitcoin was invented in 2008. Since that time, the Bitcoin blockchain has operated without significant disruption. (To date, any of problems associated with Bitcoin have been due to hacking or mismanagement. In other words, these problems come from bad intention and human error, not flaws in the underlying concepts.)
The internet itself has proven to be durable for almost 30 years. It’s a track record that bodes well for blockchain technology as it continues to be developed.
Ian Khan, TEDx Speaker
“As revolutionary as it sounds, Blockchain truly is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors, or even an exchange that was not done with the consent of the parties involved. Above anything else, the most critical area where Blockchain helps is to guarantee the validity of a transaction by recording it not only on a main register but a connected distributed system of registers, all of which are connected through a secure validation mechanism.”
– Ian Khan, TEDx Speaker | Author | Technology Futurist
Transparent and incorruptible
The blockchain network lives in a state of consensus, one that automatically checks in with itself every ten minutes. A kind of self-auditing ecosystem of a digital value, the network reconciles every transaction that happens in ten-minute intervals. Each group of these transactions is referred to as a “block”. Two important properties result from this:
- Transparency
data is embedded within the network as a whole, by definition it is public. - It cannot be corrupted
altering any unit of information on the blockchain would mean using a huge amount of computing power to override the entire network.
In theory, this could be possible. In practice, it’s unlikely to happen. Taking control of the system to capture Bitcoins, for instance, would also have the effect of destroying their value.
Vitalik Buterin, inventor of Ethereum
A network of nodes
A network of so-called computing “nodes” make up the blockchain.
Node
(computer connected to the blockchain network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the blockchain network.
Together they create a powerful second-level network, a wholly different vision for how the internet can function.
Every node is an “administrator” of the blockchain, and joins the network voluntarily (in this sense, the network is decentralized). However, each one has an incentive for participating in the network: the chance of winning Bitcoins.
Nodes are said to be “mining” Bitcoin, but the term is something of a misnomer. In fact, each one is competing to win Bitcoins by solving computational puzzles. Bitcoin was the raison d’etre of the blockchain as it was originally conceived. It’s now recognized to be only the first of many potential applications of the technology.
There are an estimated 700 Bitcoin-like cryptocurrencies (exchangeable value tokens) already available. As well, a range of other potential adaptations of the original blockchain concept are currently active, or in development.
“Bitcoin has the same character a fax machine had. A single fax machine is a doorstop. The world where everyone has a fax machine is an immensely valuable thing.”
Larry Summers, Former US Secretary of the Treasury
The idea of decentralization
By design, the blockchain is a decentralized technology.
Anything that happens on it is a function of the network as a whole. Some important implications stem from this. By creating a new way to verify transactions aspects of traditional commerce could become unnecessary. Stock market trades become almost simultaneous on the blockchain, for instance — or it could make types of record keeping, like a land registry, fully public. And decentralization is already a reality.
A global network of computers uses blockchain technology to jointly manage the database that records Bitcoin transactions. That is, Bitcoin is managed by its network, and not any one central authority. Decentralization means the network operates on a user-to-user (or peer-to-peer) basis. The forms of mass collaboration this makes possible are just beginning to be investigated.
Melanie Swan, author Blockchain: Blueprint for a New Economy (2015)
Who will use the blockchain?
As web infrastructure, you don’t need to know about the blockchain for it to be useful in your life.
Currently, finance offers the strongest use cases for the technology. International remittances, for instance. The World Bank estimates that over $430 billion US in money transfers were sent in 2015. And at the moment there is a high demand for blockchain developers.
The blockchain potentially cuts out the middleman for these types of transactions. Personal computing became accessible to the general public with the invention of the Graphical User Interface (GUI), which took the form of a “desktop”. Similarly, the most common GUI devised for the blockchain are the so-called “wallet” applications, which people use to buy things with Bitcoin, and store it along with other cryptocurrencies.
Transactions online are closely connected to the processes of identity verification. It is easy to imagine that wallet apps will transform in the coming years to include other types of identity management.
William Mougayar, author The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology (2016)
The Blockchain & Enhanced security
By storing data across its network, the blockchain eliminates the risks that come with data being held centrally.
Its network lacks centralized points of vulnerability that computer hackers can exploit. Today’s internet has security problems that are familiar to everyone. We all rely on the “username/password” system to protect our identity and assets online. Blockchain security methods use encryption technology.
The basis for this are the so-called public and private “keys”. A “public key” (a long, randomly-generated string of numbers) is a users’ address on the blockchain. Bitcoins sent across the network gets recorded as belonging to that address. The “private key” is like a password that gives its owner access to their Bitcoin or other digital assets. Store your data on the blockchain and it is incorruptible. This is true, although protecting your digital assets will also require safeguarding of your private key by printing it out, creating what’s referred to as a paper wallet.
A second-level network
With blockchain technology, the web gains a new layer of functionality.
Already, users can transact directly with one another — Bitcoin transactions in 2016 averaged over $200,000 US per day. With the added security brought by the blockchain new internet business are on track to unbundle the traditional institutions of finance.
Goldman Sachs believes that blockchain technology holds great potential especially to optimize clearing and settlements, and could represent global savings of up to $6bn per year.
“2017 will be a pivotal year for blockchain tech. Many of the startups in the space will either begin generating revenue – via providing products the market demands/values – or vaporize due to running out of cash. In other words, 2017 should be the year where there is more implementation of products utilizing blockchain tech, and less talk about blockchain tech being the magical pixie dust that can just be sprinkled atop everything. Of course, from a customers viewpoint, this will not be obvious as blockchain tech should dominantly be invisible – even as its features and functionality improve peoples’/business’ lives. I personally am familiar with a number of large-scale blockchain tech use cases that are launching soon/2017. This implementation stage, which 2017 should represent, is a crucial step in the larger adoption of blockchain tech, as it will allow skeptics to see the functionality, rather than just hear of its promise.”
– George Howard, Associate Professor Brown University, Berklee College of Music and Founder of George Howard Strategic
The Blockchain a New Web 3.0?
The blockchain gives internet users the ability to create value and authenticates digital information. What new business applications will result?
-
Smart contracts
Distributed ledgers enable the coding of simple contracts that will execute when specified conditions are met. Ethereum is an open source blockchain project that was built specifically to realize this possibility. Still, in its early stages, Ethereum has the potential to leverage the usefulness of blockchains on a truly world-changing scale.
At the technology’s current level of development, smart contracts can be programmed to perform simple functions. For instance, a derivative could be paid out when a financial instrument meets certain benchmark, with the use of blockchain technology and Bitcoin enabling the payout to be automated.
-
The sharing economy
With companies like Uber and AirBnB flourishing, the sharing economy is already a proven success. Currently, however, users who want to hail a ride-sharing service have to rely on an intermediary like Uber. By enabling peer-to-peer payments, the blockchain opens the door to direct interaction between parties — a truly decentralized sharing economy results.
An early example, OpenBazaar uses the blockchain to create a peer-to-peer eBay. Download the app onto your computing device, and you can transact with OpenBazzar vendors without paying transaction fees. The “no rules” ethos of the protocol means that personal reputation will be even more important to business interactions than it currently is on eBay.
-
Crowdfunding
Crowdfunding initiatives like Kickstarter and Gofundme are doing the advance work for the emerging peer-to-peer economy. The popularity of these sites suggests people want to have a direct say in product development. Blockchains take this interest to the next level, potentially creating crowd-sourced venture capital funds.
In 2016, one such experiment, the Ethereum-based DAO (Decentralized Autonomous Organization), raised an astonishing $200 million USD in just over two months. Participants purchased “DAO tokens” allowing them to vote on smart contract venture capital investments (voting power was proportionate to the number of DAO they were holding). A subsequent hack of project funds proved that the project was launched without proper due diligence, with disastrous consequences. Regardless, the DAO experiment suggests the blockchain has the potential to usher in “a new paradigm of economic cooperation.”
-
Governance
By making the results fully transparent and publicly accessible, distributed database technology could bring full transparency to elections or any other kind of poll taking. Ethereum-based smart contracts help to automate the process.
The app, Boardroom, enables organizational decision-making to happen on the blockchain. In practice, this means company governance becomes fully transparent and verifiable when managing digital assets, equity or information.
-
Supply chain auditing
Consumers increasingly want to know that the ethical claims companies make about their products are real. Distributed ledgers provide an easy way to certify that the backstories of the things we buy are genuine. Transparency comes with blockchain-based timestamping of a date and location — on ethical diamonds, for instance — that corresponds to a product number.
The UK-based Provenance offers supply chain auditing for a range of consumer goods. Making use of the Ethereum blockchain, a Provenance pilot project ensures that fish sold in Sushi restaurants in Japan has been sustainably harvested by its suppliers in Indonesia.
-
File storage
Decentralizing file storage on the internet brings clear benefits. Distributing data throughout the network protects files from getting hacked or lost.
Inter Planetary File System (IPFS) makes it easy to conceptualize how a distributed web might operate. Similar to the way a bittorrent moves data around the internet, IPFS gets rid of the need for centralized client-server relationships (i.e., the current web). An internet made up of completely decentralized websites has the potential to speed up file transfer and streaming times. Such an improvement is not only convenient. It’s a necessary upgrade to the web’s currently overloaded content-delivery systems.
-
Prediction markets
The crowdsourcing of predictions on event probability is proven to have a high degree of accuracy. Averaging opinions cancels out the unexamined biases that distort judgment. Prediction markets that pay out according to event outcomes are already active. Blockchains are a “wisdom of the crowd” technology that will no doubt find other applications in the years to come.
Still, in Beta, the prediction market application Augur makes share offerings on the outcome of real-world events. Participants can earn money by buying into the correct prediction. The more shares purchased in the correct outcome, the higher the payout will be. With a small commitment of funds (less than a dollar), anyone can ask a question, create a market based on a predicted outcome, and collect half of all transaction fees the market generates.
-
Protection of intellectual property
As is well known, digital information can be infinitely reproduced — and distributed widely thanks to the internet. This has given web users globally a goldmine of free content. However, copyright holders have not been so lucky, losing control over their intellectual property and suffering financially as a consequence. Smart contracts can protect copyright and automate the sale of creative works online, eliminating the risk of file copying and redistribution.
Mycelia uses the blockchain to create a peer-to-peer music distribution system. Founded by the UK singer-songwriter Imogen Heap, Mycelia enables musicians to sell songs directly to audiences, as well as licence samples to producers and divvy up royalties to songwriters and musicians — all of these functions being automated by smart contracts. The capacity of blockchains to issue payments in fractional cryptocurrency amounts (micropayments) suggests this use case for the blockchain has a strong chance of success.
-
Internet of Things (IoT)
What is the IoT? The network-controlled management of certain types of electronic devices — for instance, the monitoring of air temperature in a storage facility. Smart contracts make the automation of remote systems management possible. A combination of software, sensors, and the network facilitates an exchange of data between objects and mechanisms. The result increases system efficiency and improves cost monitoring.
The biggest players in manufacturing, tech and telecommunications are all vying for IoT dominance. Think Samsung, IBM and AT&T. A natural extension of existing infrastructure controlled by incumbents, IoT applications will run the gamut from predictive maintenance of mechanical parts to data analytics, and mass-scale automated systems management.
-
Neighbourhood Microgrids
Blockchain technology enables the buying and selling of the renewable energy generated by neighborhood microgrids. When solar panels make excess energy, Ethereum-based smart contracts automatically redistribute it. Similar types of smart contract automation will have many other applications as the IoT becomes a reality.
Located in Brooklyn, Consensys is one of the foremost companies globally that is developing a range of applications for Ethereum. One project they are partnering on is Transactive Grid, working with the distributed energy outfit, LO3. A prototype project currently up and running uses Ethereum smart contracts to automate the monitoring and redistribution of microgrid energy. This so-called “intelligent grid” is an early example of IoT functionality.
-
Identity management
There is a definite need for better identity management on the web. The ability to verify your identity is the lynchpin of financial transactions that happen online. However, remedies for the security risks that come with web commerce are imperfect at best. Distributed ledgers offer enhanced methods for proving who you are, along with the possibility to digitize personal documents. Having a secure identity will also be important for online interactions — for instance, in the sharing economy. A good reputation, after all, is the most important condition for conducting transactions online.
Developing digital identity standards is proving to be a highly complex process. Technical challenges aside, a universal online identity solution requires cooperation between private entities and government. Add to that the need to navigate legal systems in different countries and the problem becomes exponentially difficult. E-Commerce on the internet currently relies on the SSL certificate (the little green lock) for secure transactions on the web. Netki is a startup that aspires to create a SSL standard for the blockchain. Having recently announced a $3.5 million seed round, Netki expects a product launch in early 2017.
-
AML and KYC
Anti-money laundering (AML) and know your customer (KYC) practices have a strong potential for being adapted to the blockchain. Currently, financial institutions must perform a labour intensive multi-step process for each new customer. KYC costs could be reduced through cross-institution client verification, and at the same time increase monitoring and analysis effectiveness.
startup Polycoin has an AML/KYC solution that involves analysing transactions. Those transactions identified as being suspicious are forwarded on to compliance officers. Another startup Tradle is developing an application called Trust in Motion (TiM). Characterized as an “Instagram for KYC”, TiM allows customers to take a snapshot of key documents (passport, utility bill, etc.). Once verified by the bank, this data is cryptographically stored on the blockchain.
-
Data management
Today, in exchange for their personal data people can use social media platforms like Facebook for free. In future, users will have the ability to manage and sell the data their online activity generates. Because it can be easily distributed in small fractional amounts, Bitcoin — or something like it — will most likely be the currency that gets used for this type of transaction.
The MIT project Enigma understands that user privacy is the key precondition for creating of a personal data marketplace. Enigma uses cryptographic techniques to allow individual data sets to be split between nodes, and at the same time run bulk computations over the data group as a whole. Fragmenting the data also makes Enigma scalable (unlike those blockchain solutions where data gets replicated on every node). A Beta launch is promised within the next six months.
-
Land title registration
As Publicly-accessible ledgers, blockchains can make all kinds of record-keeping more efficient. Property titles are a case in point. They tend to be susceptible to fraud, as well as costly and labour intensive to administer.
A number of countries are undertaking blockchain-based land registry projects. Honduras was the first government to announce such an initiative in 2015, although the current status of that project is unclear. This year, the Republic of Georgia cemented a deal with the Bitfury Group to develop a blockchain system for property titles. Reportedly, Hernando de Soto, the high profile economist and property rights advocate, will be advising on the project. Most recently, Sweden announced it was experimenting with a blockchain application for property titles.
-
Stock trading
The potential for added efficiency in share settlement makes a strong use case for blockchains in stock trading. When executed peer-to-peer, trade confirmations become almost instantaneous (as opposed to taking three days for clearance). Potentially, this means intermediaries — such as the clearing house, auditors and custodians — get removed from the process.
Numerous stock and commodities exchanges are prototyping blockchain applications for the services they offer, including the ASX (Australian Securities Exchange), the Deutsche Börse (Frankfurt’s stock exchange) and the JPX (Japan Exchange Group). Most high profile because the acknowledged first mover in the area, is the Nasdaq’s Linq, a platform for private market trading (typically between pre-IPO startups and investors). A partnership with the blockchain tech company Chain, Linq announced the completion of it its first share trade in 2015. More recently, Nasdaq announced the development of a trial blockchain project for proxy voting on the Estonian Stock Market.
Judd Bagley
“2016 was the year in which blockchain theory achieved general acceptance, but remained in theory, with the big players lingering around the hoop waiting to see who would take the first shot. As the year comes to an end, blockchain technology is tantalizingly close to turning the corner and entering the realm of small-scale commercial ability. Overall, 2017 is going to be the year of the very well-considered and well-funded proof of concept, with a few projects achieving revenue positive status. Venture investment is going to continue to be substantial but less than we saw in 2016 and 2015. I’d predict one or two exits by acquisition.”
– Judd Bagley Director of Communications at Overstock.com and Chief Evangelist at t0.com
[/bg_collapse]
