“What happens today,” said the first speaker, Rik Willard, of the Agentic Group, “you should never forget. Because this is the birth of the South American blockchain movement.”
Headquartered in New York City, Agentic Group is a global federation of over forty blockchain companies. Its mission is to promote and sustain the blockchain ecosystem through consulting, education and development.
In large part due to blockchain technology, says Willard, “The command and control, hierarchical mindset is in fact crumbling right in front of your face.”
Your editor, upon writing, is reporting from Emerging Links, Brazil’s very first international blockchain conference in São Paulo.
Here’s what I’ve gathered so far…
How Crypto Will Affect the Underbanked
“With a digital token and this,” Willard said, holding up his smartphone, “in three years, $3 billion people are going to storm into the global economy.”
One of the greatest merits of blockchain technology is it allows for anyone to essentially create their own economic ecosystems with virtually zero barriers to entry. It’s not completely crazy to predict that in three years (or less), even the most tech-illiterate will be able to create and issue their own currencies from their mobile phones. Moreover, they’ll be able to access currencies which will be accepted on a global scale without the need for banks.
And, by and large, the underbanked is fully equipped for this revolution right now.
In Kenya, for example, even those who lack access to basic infrastructure are very likely to have access to a mobile phone. And most Africans already use their mobile phones to pay for things they need via text message.
But, that’s not all the blockchain allows for the underbanked.
Registering assets on a decentralized ledger (via “tokenization”), whether it’s a mortgage, a piece of art, solar panels, or your car fob, gives individuals immutable proof of ownership.
Many of the world’s unbanked, even those who live in Brazilian favelas, own assets in some form. But a bank isn’t interested in a shack, two chickens and a baby pig. Banks would have to be bailed out once every six months if they started accepting eggs and chicken feed as collateral.
But cryptocurrencies, on the other hand, give individuals the ability to collateralize their assets, however small, and trade them in the marketplace… without the banks.
Strong, verifiable private property rights — which, as a cornerstone, includes having a trustworthy record of ownership — gives individuals on all rungs of society the incentive and wherewithal to produce, innovate and make things better, faster and stronger.
Blockchain makes this possible.
Centralized ledgers are soooo 2007.
“I like to think of Lehman Brothers,” said Michael Casey, author of Age of Cryptocurrency, “as a centralized ledger problem.”
Ideally, ledger systems should create trust between those who use them.
We take trust for granted. We trust, every day, someone isn’t going to veer into our lane and hit us head on while we’re driving down the street. We trust our Uber drivers won’t run us off a cliff. I trust my Airbnb host in isn’t going to try to murder me in my sleep.
But we can’t always trust each other. Though the external world changes, human nature hasn’t changed much.
Which is why, long ago, in an attempt to create a slightly more trustworthy system, double-entry bookkeeping was born.
The problem with this model, though, is the banks get to control the ledger. And with control of this ledger comes incredible power. And that power has been abused again and again and again and again.
More than just corruption, though, centralized ledgers are hopelessly insecure.
Hundreds of millions of accounts with personal information have been exposed just in the past couple of years alone.
If I’m a hacker, a central database is heaven on Earth. If individuals are self-sovereign, on the other hand, which is possible with blockchain technology, I have to hack individuals, not databases, making it far less likely for me to compromise you specifically.
I like the odds of the latter scenario much better.
Instead of having central entities to control all data, blockchain technology gives control of private information and money back to the user. Moreover, digital certificates can be issued to individuals directly by certification agencies, to be stored on the blockchain, without the need for centralized databases.
“I would suggest the notion of what finance actually is will change,” said Casey. “This is the most disruptive idea in the world.”
What this means for legacy systems.
Legacy systems will benefit, at first, by embracing the blockchain.
Large business-to-business transactions can flow like water and be completed with significantly lower costs. System-based errors can become virtually non-existent.
These are a couple of reasons why legacy banks love blockchain. It’s unlikely, though, these benefits will be passed on to the consumer. But, to the banks, that’s not the point.
Which is why, on the other hand, banks are extremely apprehensive about the currency riding on the original blockchain’s backbone — bitcoin.
This apprehension, though, presents a problem…
Bitcoin, and the currencies like it, are infinitely superior to their fiat counterparts. It’s only a matter of time until the world realizes this.
Their decentralized nature, though, gives banks few advantages in the marketplace.
Without a top-down monopoly on money, the entire financial business model of the traditional banking system will be turned upside down. Without free money a la the Fed and bailouts, the banks will be forced to… wait for it… compete in a dynamic marketplace where they are largely obsolete.
The stock market, one speaker, Frederik Voss of Nasdaq’s Blockchain Innovation sector reminded us, was, in the ‘60s, a fully peer-to-peer marketplace. Transactions were settled in real-time, mostly by bike messengers.
Before the transition to a centralized digital structure, there were written suggestions of an electronic P2P marketplace. It wasn’t until Napster took the music industry by storm that a P2P digital marketplace actually had proof-of-concept.
Too big to fail is a bug, not a feature. And it’s a problem of centralized architecture. But that’s about to change.
Looking to the future.
All of the greatest aspects of blockchain technology, smart contracts included, exist, and will likely continue to exist for many years to come, in a legal gray area. The technologies are far too fluid, malleable and hyper-competitive to be profitable to a company with enormous overhead and a bumbling, corrupted bureaucracy to deal with.
Permissionless innovation and monetization will drive this movement forward and legacy systems, for a plethora of reasons, simply don’t have the luxury to move fast enough.
While the strict regulatory environment has helped them tremendously to stave off competition in the past, it’ll be the legacy model’s Achilles’ heel in the coming years.
There are already cryptocurrency marketplaces, like BitSquare and the one being created by Waves, which are 100% decentralized, global, anonymous and peer-to-peer. Decentralized, anonymous marketplaces for goods, too, such as OpenBazaar, are already here, too. And are getting better by the day.
If cryptocurrencies are, indeed, the future, which seems to be the consensus in many tech circles….
How, precisely, the legacy systems expect to compete with this flattened hierarchy is a question in which I’ve received very few satisfactory answers.
And by that I mean none.
More to come tomorrow.
Managing editor, Laissez Faire Today