The Blockchain Revolution: A Financial Paradigm Shift
Technology is evolving so quickly that our social habits are constantly being upgraded to adapt to new paradigms. Disruptive technology often starts off in the fringes of society amongst a dedicated group of innovators and early adopters, yet slowly integrates its way into mainstream culture. An example of this, is the blockchain revolution.
The internet of the early 90’s was primitive and experimental until entrepreneurs built up its infrastructure and investors injected large sums of capital during the dotcom bubble. As the internet became more sophisticated we experienced the global effects of social media, which redefined the way we share information. The internet opened up Pandora’s box for peer-to-peer communication, allowing anyone to openly share information without centralized editors.
Smart phones were the next major paradigm shift, allowing individuals the power of carrying the internet in their pocket. This sparked a whole new change in behavioural patterns, making it easy for people to create videos and upload it to social platforms such as YouTube. Watching low budget videos from our peers has become equally as entertaining as big production movies.
The independent music industry is also booming because artists now how an affordable medium to distribute their content without needing to go through a record label. Big production companies are struggling with the changes because digital content can easily be copied and freely shared. Independent artists adapt by giving away their content for free and monetizing it through ad revenue.
In the information age, technology is the great equalizer of power, as individuals have cheap tools and easy access to global communication. Now even the kid rapping in his parents basement can turn millions in profit if his content goes viral.
Blockchains: The Next Revolutionary Wave
Bitcoin took the same concept of open peer-to-peer communication and applied it to money. Some even call it “the internet of value”. For the first time in history we now have an open global financial network that can operate independently of centralized financial institutions. Bitcoin is unforgeable, censorship-free money that can be sent anywhere in the world for mere pennies.
Bitcoin’s underlying blockchain technology is a ledger that can record immutable transactions by using advanced cryptography. Although Bitcoin is the oldest and most secure blockchain in the world, its open-source code has lead to a programming renaissance of experimentation.
Developers have been experimenting with different models of blockchains for years with the intent of decentralizing most of the applications we use on the internet. Peer-to-peer networks are more resilient to attacks because they eliminate single points of failure.
Banking on the Blockchain
The entire financial industry is looking to upgrade their systems to blockchain models. Their current systems tend to be slower and have security defects. Recently it came to public attention that the Federal Reserve has been hacked 50 times by cyber thieves.
Blockchains will benefit legacy finance in a multitude of ways such as:
- Instant settlement
- Cheaper transactions
- Increased security
- More transparency
- Programmable contracts
On Wall Street blockchains can help reduce financial fraud such as naked short selling, which is done by exploiting the delayed settlement of securities.
Open vs Private Blockchains
There is often a debate over whether blockchains are better as open or closed systems. This debate is nothing more than a false dichotomy because both use cases are relevant. With networking sometimes you want an open system like the internet or a closed system such a LAN (local area network).
People who argue in favour of private blockchains should realize that true global innovation happens on open shared networks. The internet that we have today would lack many features if it weren’t for developers working collaboratively on an open network. Banks wouldn’t even have access to blockchain technology if Bitcoin wasn’t built as an open-source public network.
Over the next couple of years we’ll likely see an exponential growth in blockchain development with the potential of Bitcoin reaching the mainstream consumer adoption phase.