In looking at the Future of Money, Payment Cards, and Financial Services, the big story isn’t Bitcoin, rather it’s the invention of the underlying blockchain technology that makes it (Bitcoin) and dozens of smaller cryptocurrencies actually work.
Starting in 2008 and early 2009, forged in a global furnace of libertarian money, trade, avarice, criminality, espionage, and law enforcement – and invented and released to the world as open source software by Satoshi Nakamoto (an assumed name) – Bitcoin and other cryptocurrency experiments provide increasing confidence that Blockchains are robust in harsh environments and have a bright future in financial services and many other areas of commerce and society.
A blockchain is a transaction database shared by all nodes participating in the Bitcoin protocol system – a public ledger that prevents making the same transaction twice, (ie. no double spending) and is virtually indestructible.
Each and every new block of transactions contains a hash of the previous block, creating a ‘chain of blocks’ – ie. a Blockchain, from the first ‘genesis’ block to the current block. A full copy of a blockchain public ledger contains every transaction ever executed from the beginning until the latest transaction.
How might the Blockchain protocol transform traditional financial services? There are numerous suggestions, ranging from asset (eg Land) registries to trade reporting, consolidated tapes, personal insurance blockchains, smart insurance contracts, corporate voting, identity blockchains for anti-fraud protection, tax registries, accounting registries, multi-entity contracting, and even virtual contract companies.
Also Digital Autonomous Organisations (DAO’s) or Digital Autonomous Corporations (DAC’s) whose share ownership is recorded in a Blockchain in the cloud and not under the regulation or control of any one sovereign government – just like the Internet (and Skype, although it’s centralised and owned by Microsoft)
The blockchain could also be used to record contracts between free individuals, and enforcement mechanisms coded in to create self-enforcing ‘Smart Contracts’ – a system for building encoded law that bypasses nation states.
Also of particular interest is the potential for societal change engendered by users regaining control over their own personal information and data instead of third parties like Facebook, Dropbox and Credit Agencies (eg. Experian)
And just imagine… fully transparent voting for national and local elections that is decentralised based on a blockchain, where each vote could be verified with a hash created with your name & ID number for verification. Voting fraud would end…
As I mentioned today, Ethereum (Ethereum.org) plans to facilitate all of the above by creating a single ‘decentralised computational engine’. This is a system for running programmes, or executing contracts, on a single Blockchain held in play via a distributed network of computers (like Bitcoin) rather than say with Mark Zuckerberg’s Facebook data centres.
To summarise, the blockchain protocol is potentially a much bigger opportunity than Bitcoin….The key point about blockchain based architectures is that they allow trustless transactional activity…There is no (centralised) third party, there is no clearing house of identity or transaction information.
This post comes courtesy of Michael Parsons, a Bitcoin advocate and advisor with over 25 years in the banking and financial industries. You can find Michael on Twitter @bitcoinbyte