How Blockchain Technology will Change the World

The internet has developed rapidly over the last two decades. It has become the lifeline of our everyday lives. While our toasters now can exchange information with their manufacturer, we keep up to date with what’s happening, send and receive messages, download videos or romp around on platforms. The internet has fundamentally changed the way we communicate.  Difference between data transfer and value transfer  While we can transfer data across the globe within seconds, transferring money is comparatively difficult. For a long time there was no way around large financial institutions, which act as middlemen and have built up a protectionist exclusivity for such services. Credit card companies, banks and payment service providers share the global payment traffic among themselves. Technological progress has not yet had an impact in this area. It is still expensive, time-consuming and an obstacle to transfer money across national borders. In addition, poverty but also censorship and arbitrariness prevent around 1.7 billion adults from accessing the banking system. Money and currency  Around 430 B.C., the barter system began to revolutionize in the region of present-day Greece. With the beginning of a new medium of exchange in the form of gold coins, the basis for both more efficient trade and simpler state administration was created. Athens, as the centre of ancient Greece, became a powerful empire thanks to the introduction of gold coins, thus laying the foundation for Western civilisation. With the war against Sparta amongst other factors, money in the form of gold coins began to run short over the years, and a deficit threatened. The rulers of the time decided to melt down the gold coins collected through taxes and mix them with copper with the aim of creating more coins. The gradual devaluation through inflation was created and coupled with a loss of confidence of the population in the new currency, this constellation inevitably led to hyperinflation and the collapse of the old Greek empire. Abolition of the gold standard and expansion of the money supply  This event has repeated itself several times in the contemporary history of money. The gold standard, which had covered at least part of the cash in circulation until the end of the 1970s, was gradually abolished. Fiat Money, by definition an object without intrinsic value that serves as a medium of exchange, has become globally accepted. In the 2008 financial crisis, central banks flooded the world with newly created fiat money to save the ailing financial system. Several banks had to be bailed out and the outstanding money multiplied as the consequence and is currently at an all-time high. So the value of our cash now consists only of an imprinted value – without an intrinsic value. Bitcoin Whitepaper – Beginning of the Blockchain Technology Just at the time when the fed and later other central banks announced their plan for the endless creation of FIAT currencies, in October 2008 a description of how to implement a digital currency based on block-chain technology appeared in software development circles. The so-called Bitcoin White Paper, written by Satoshi Nakomoto, a pseudonym. Until today the creator of this paper is not known. In this paper a payment system is described in which its participants can transfer values peer to peer without the help of an intermediary. The technological basis was a complex combination of several previously developed components, which were necessary for the creation of a payment system. This combination solved a previously fundamental computer science problem called “double spending”, that had previously prevented a software-based payment system. By means of a cryptographic puzzle called proof-of-work it was now possible to check and process payments without a central authority. All transactions are kept on independent computers in a distributed public accounting system. Decentralized payment network An electronic payments network was created. There was no longer any need to trust anyone to ensure that transactions and accounting were properly processed and managed. The currency on this system is called bitcoin. It can be exchanged for fiat currencies on several exchanges. The so-called miners, who ensure the decentralized administration, are rewarded for their work with newly created bitcoins. The amount of bitcoins that will be in circulation is limited to 21 million; all of which will be paid out in decreasing amounts over the years. There are currently about 17.9 million bitcoins in circulation and the last newly created bitcoins are expected to be paid out in 2140. The current inflation rate for the newly created bitcoins is 3.17%. Independent crypto currency  Two birds have been killed with one stone, since with the help of blockchain technology, a previously unsolvable problem has been resolved, namely the ability to transfer values over the internet without having to trust a central authority. Bitcoin represents a currency independent of the global financial system, which includes a clearly predefined monetary policy. Due to the calculable inflation rate, bitcoin serves, among other things, as a digital asset and fulfills the criteria of a value investment with its properties. Due to its limited supply, bitcoin is often compared to gold and is aptly described as digital gold. Since its creation in 2009, Bitcoin has gone through some ups and downs, but can be described as a success story. While the first bitcoins were traded for a few cents, the price and with it public interest, reached a new high of over USD 20,000 per Bitcoin at the end of 2017. In the meantime, the price has returned to just over 10’000 USD, but the price development is only one factor in the entire Bitcoin ecosystem. In addition to the continuous improvement of the software protocol by countless programmers and the continuous increase in the billing performance that the system secures and guarantees, the past years have seen countless exchanges established that process several billion USD in Bitcoin transactions every day. Bitcoin makes many things possible. It is possible for anyone with internet access to transfer assets in the form of bitcoins from A to B without having to rely on institutions. This is at a comparatively low cost (currently around 0.4 USD). Due to the characteristics of conventional investments, bitcoin qualifies as an alternative asset class. Wallstreet is well aware of this and large institutions from the traditional financial sector are getting ready for a broader adaptation in the investment universe in cooperation with the local supervisory authorities. New age with crypto currencies and block chain technology There is much to suggest that bitcoin and blockchain technology will have a lasting impact on our time over the next few years. The technology and its scaling possibilities have a revolutionary character. Over the years, bitcoin has been joined by countless new crypto-currencies based on the blockchain technology. The range of applications is enormous and will redesign existing processes in business and administration. Of course, there are also hurdles to be overcome in this rapid development. In addition to the current lack of clear regulation around crypto-currencies, the scalability of the network and its resource consumption in the form of energy is also a recurring theme. * Originally published in German at CVJ.ch 

About the Author

crypto-valley-journal

The CVJ editorial team consists of crypto experts, active in different areas around the blockchain technology. In cooperation with selected authors, CVJ.CH provides a high-quality resource around the distributed ledger technology. Independent and up-to-date reporting according to journalistic standards as well as educational content around the topic blockchain, rounds off the offer. 

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