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Blockchain: What It Means For Us

By Shlomo Maital

blockchain

   At a Swiss-Israel Innovation Workshop I spoke at recently, in Lucerne, a speaker casually mentioned that the next world-changing technology will certainly be something called “blockchain”.

     What in the world?

     According to Florian Graillot, writing in the TechCrunch website:

       In the blockchain, information is stored in blocks that record all transactions ever done through the network.  Hence, it allows validating both the existence of assets to be traded and ownership.   To avoid double spending, the technology requests several nodes to agree on a transaction to process it.  A validation is also artificially difficult to achieve: miners leverage computer power to solve complex cryptographic problems (the proof-of-work). Every time a problem is cracked, a block is added to the chain, and all the transactions it includes are thus validated. The updated chain, including the new block, is shared with other nodes and becomes the new reference; this process leverages cryptography to prevent duplicate transactions.

   Not too clear?   Another try: With blockchain, chains of ‘blocks’, or transactions, you don’t need a middle man (e.g. bank) to organize buying and selling. It is done by a network of buyers and sellers, and the technology of blockchain enables secure transactions, without fraud.   Blockchain is a matchmaker bringing together those who have something with those who want it. It is built, like building a brick wall…

   It is best understood by the way it is used.    Graillot continues: “ Bitcoin was the first use case of the blockchain, and the most famous one. Its founder developed this technology to process money transfers and to solve many cryptocurrency issues. Instead of having a central bank that issues money, and banks to validate financial transactions, Bitcoin relies on the blockchain. Abra, for instance, is leveraging this technology to ease money transfers across borders — they rely on Bitcoin to disrupt the remittance market.”

   Blockchain is a disruptive technology – that is, a game-changing technology that undercuts huge established existing players (stock exchanges, banks, etc.) and instead enables smaller players and startups to compete, by creating value for customers.

   “…..many applications of the blockchain could be explored. And startups are already working on this technology to disrupt industries. Indeed, every time a third-party is involved to process a transaction, the blockchain could replace it.   ● Overstock developed “tØ” a public equities trading platform based on the blockchain. And in the same area, NASDAQ announced a partnership with Chain a few months ago: They are working on disrupting shares trading by using the blockchain. More generally, financial institutions, like Goldman Sachs or Barclays are teaming up with the startup R3 to create a new framework for the markets based on the blockchain. A few startups are going even further, and plan to use the blockchain to trade physical assets. Thus, Bitproof and Blocknotary are disrupting contracts by recording them on the blockchain; instead of completing your house sale in front of a notary, just store the contract on the public ledger. ●   Colu, on its side, is using the blockchain to manage property through digital tokens that can unlock either online services or physical objects. This also could be applied to intellectual property. For instance, Verisart is using this decentralized technology to verify art pieces. It encodes copyrights of artwork and records them on the blockchain. ProofOfExistence, as well, is leveraging the public ledger to keep track of files you have created. ●   To go further, the blockchain could be used to identify people. ShoCard encodes and stores personal information regarding identity. It could enable smart contracts, as well: As soon as terms are met, the contract is processed, thanks to the decentralized infrastructure. IBM is currently working on this application. It also unveiled a partnership with Samsung ADEPT, a proof of concept using the blockchain in the Internet of Things area.”

   We don’t really need to understand the technology of blockchain. Enough to know that it can match supply and demand, worldwide, instantly, and in a secure manner, bringing people together. Marc Andreessen, legendary inventor of Netscape, compares it to previous tech revolutions: “Personal computers in 1975, the Internet in 1993 and Bitcoin in 2014.”

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Bitcoin: Toward a World Currency?

A Guide for the Perplexed

By Shlomo  Maital  

       Bitcoin

Bitcoin 2

   What is bitcoin?

     It is a virtual digital currency and person-to-person payment network developed by “Satoshi Nakamoto” (not a real name).  It uses cryptography to secure funds.  When you pay in bitcoins, the money is transferred between Bitcoin addresses that are encoded.   You can store bitcoin addresses in an online “wallet”.

    Bitcoins’ use is growing though it is still small relative to total on-line payments. Bitcoins’ value relative to dollars is set by supply and demand.  Contrary to popular belief, there is actually a physical bitcoin.  You can buy a physical bitcoin, which can be broken open to reveal  a piece of paper with the private code or key to a bitcoin wallet with bitcoins in it.

    Is this real money?

     In a sense yes.  Bitcoin is no more ‘virtual’ than dollars, yuan or euros.  Most money is not paper, but instead takes the form of bank deposits.  Bank deposits are created by a stroke of a bank manager’s pen, when he or she lends money. If the bank goes bankrupt, all those deposits disappear.  What could be more ‘virtual’ than that?

  What determines the value of bitcoins?

  The same thing that determines conventional money’s value – willingness of people to hold it and to give up real goods and services in exchange for it. 

   What do we learn from bitcoins?

  A simple powerful lesson.  America today is  endangering the world’s economy and trading system by printing massive amounts of dollars.  This erodes our trust in the dollar; without a secure currency, we cannot run a global economy. And 80% of foreign trade transactions are still done in dollars.  (Note: The yuan, or renminbi, has just taken over as #2!).   Bitcoins’ amount is more or less fixed.  So their value cannot be destroyed by overprinting.  The value does fluctuate a lot, because of speculation; it started at $50, rose to over $1200, is now done to just over $600….

   Can you, say, travel the world and pay only in bitcoins?

Yes, one couple did.  But it was really really difficult.

    Could bitcoins take over from conventional money?

    No, but – perhaps they should.  In 1944, at the Bretton Woods conference, Keynes suggested a world money, bancor, issued by a world central bank.  This world money would be issued in just the right amount to finance global trade and investment, avoiding both inflation and deflation.  Bitcoin is kind of similar.  It does show that we could, if we wished, create a virtual world money, solely for global trade and finance.  It would avoid the perils of being dependent on the irresponsibly-managed U.S. dollar.  Perhaps we will have to have another serious world collapse to make this happen; even then, America is unlikely to agree.   

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
September 2019
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