Many people have now heard of bitcoin and cryptocurrency. And many have heard the term “blockchain” thrown around. But what is this new technology, and why is it such a big deal? How does it work? What other uses for blockchain exist outside of facilitating financial transactions? How does it make traditional banking obsolete?
Blockchain defined
A blockchain is a distributed ledger of transactions that use cryptography to keep exchanges secure. A distributed network of computers verifies or confirms a transaction before it is allowed to be broadcast. For this reason, blockchains are decentralized, meaning no central authority exists, or can exist, that can oversee or control them. A blockchain using a currency like Bitcoin or Litecoin enables the user to make secure financial transactions without the need of a third-party.
image credit: [SydesJokes via Flickr]
provides a decent elementary description of how blockchain works. They also make a simple and elegant statement as to why and how blockchain has huge potential to completely alter our current paradigm:
“The technology can work for almost every type of transaction involving value, including money, goods, and property. Its potential uses are almost limitless: from collecting taxes to enabling migrants to send money back to family in countries where banking is difficult.”
In a pinch, that’s it. Fully explaining why this concept is so revolutionary can take some time. For now, let’s examine some other uses of this tech that are currently being explored and implemented.
Other uses of blockchain
While the potential uses of blockchain are indeed limitless, some are being implemented or developed right now. The following altcoins have gained much fanfare for their practical applications of principles upheld by many in the crypto community, such as privacy, security, personal empowerment and freedom of choice.
Siacoin, Maidsafe, Filecoin
These three all have one thing in common: they seek to create secure and private file-sharing systems. The distributed, decentralized nature of the blockchain creates a perfect avenue for storing data in a way that cannot be compromised. Imagine splitting a file into thousands of tiny pieces and distributing across a vast network. It becomes very difficult, if not impossible, for an outside party to retrieve that information.
Ethereum
Ether, the token of the Ethereum network has been the second-largest cryptocurrency by market cap for quite some time now. Ethereum utilizes “smart contracts”. It’s this new application of blockchain tech that had led this crypto to be so successful. The following explanation of smart contracts comes from Coindesk:
“While a standard contract outlines the terms of a relationship (usually one enforceable by law), a smart contract enforces a relationship with cryptographic code.
Put differently, smart contracts are programs that execute exactly as they are set up to by their creators.”
Dash, Zcash, Monero
These three are all cryptocurrencies like Bitcoin or Litecoin. However, their blockchains are opaque – not transparent like bitcoin. One cannot trace transactions for Dash, Monero, and Zcash back to any individual wallet. The mechanisms by which they accomplish this are varied. It’s debatable which blockchain works the best for anonymous transactions. However, it’s worth noting that Zcash has received an informal endorsement by Edward Snowden.
Agree. Zcash’s privacy tech makes it the most interesting Bitcoin alternative. Bitcoin is great, but “if it’s not private, it’s not safe.” https://t.co/HqwQOvSCiz
— Edward Snowden (@Snowden) September 28, 2017
Banks are becoming obsolete
Reggie Middleton is the founder of Veritaseum, author of Boom Bust blog, and a regular guest on RT America and CNBC. Some refer to him as the “financial Nostradamus” for his insanely accurate predictions. He also happens to be an authority on all things crypto and blockchain.
In defining blockchain technology, it’s impossible not to note the threat that it poses to the traditional banking sector. It’s not just bitcoin itself, which is only one application of blockchain. Using a blockchain eliminates the need for a third-party like a bank while it also reduces transaction times and fees. As Bitcoin CEO Rick Falkvinge has said,
“We won’t need banks anymore.”
Middleton explains very well the threat posed to banks by bitcoin and blockchain in this interview. In addition, he brings some clarity to the question: how does disinformation run so rampant among the mainstream regarding bitcoin and crypto in general? (If you missed it, here’s last week’s post examining some big names who have been wrong about crypto).
In the following presentation, Reggie Middleton explains the economics of blockchain and explores how it is a total paradigm-shifter:
In conclusion, entrepreneurs have yet to invent the most fantastic and useful applications of the new tech first used by Bitcoin. One thing is for sure: coins can come and go. Early crypto investor Charlie Shrem has even admitted that a very small possibility exists that bitcoin could, at some point, fail altogether. But no matter what happens to any individual coin, blockchain will change the world forever. It already has.
We first started recommending bitcoin around $100 and added it to the GSB portfolio under $1,000. It is currently around $18,000. We called Litecoin “massively undervalued” just a month ago and added to our model portfolio around $60. It is currently at $320. We created an ICO tracker that rates top initial coin offerings/token sales. The average gain of our top ICO picks in 2017 is over 250%!
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