Towards a compromise
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Good things in blockchain
After having written a bunch of articles with a series of critiques against the blockchain ecosystem, today, I want to be fair. I would like to introduce you to the incredible things that blockchains and digital assets can bring to the table.
Blockchain
Let’s start with a summary of what blockchains are. A blockchain is a distributed database or ledger shared among the nodes of a computer network. As a database, a blockchain stores information electronically in a digital format. This immutable ledger facilitates the process of recording transactions and tracking assets in a business network.
Why this technology is so celebrated?
That’s a very good question. And my answer is digital scarcity.
Digital scarcity is the possibility to create unique digital assets that cannot be copied or altered in any way. I believe those two sentences are all you need when people are asking about blockchain technology:
A distributed ledger shared among many computers which enables digital scarcity.
The blockchain has other interesting properties that I have mentioned multiple times in my posts. The main property of a system built on blockchain are the following:
- Transparency (The state of the blockchain is transparent )
- Provenance ( It is possible to trace the origin of the data )
- Finality ( What is written in the ledger is correct for all the nodes )
- Public Verifiability ( All the actions can be verified )
- Availability ( Data is always available and accessible )
- Integrity ( Data cannot be changed after finality )
- Redundancy ( Data is replicated )
It is not an accident that I have put transparency at the top of the list. This is one of the biggest perks of using blockchains for users. I tried many times to argue that transparency and permissionless are the two main properties you should seek blockchain for. Decentralization is not really a priority. With time we will see a lot of pieces going to centralization as the Internet did.
Given this little personal introduction to the blockchain, it is time to look to the bright side.
Financial Transparency
Blockchain enables individuals to force companies to be transparent. This point is really undervalued, unfortunately. There are many reasons why people like blockchains but one of those reasons is transparency. There is one more weapon in the hands of people. Blockchains are incredible open databases where every transaction is shared with the whole world. Every transaction done by individuals or even companies is fully trackable. Both single coins or address history. Transparency enables trust between individuals without the need for a third party. Many financial services can raise without the need for permission.
Transparency Problem
Even looking outside the financial space, transparency is the core. From NFTs to identity, passing by social networks. Transparency is what makes those backends really interesting and valuable. Nothing usually comes for free. We get also some critical privacy problems. I have already dedicated one full article to privacy on the blockchain so I won’t go long on that. However, it is important to recognize that privacy is quite minimal on a public ledger. Even though we have research driving in this direction, privacy is still in its infancy. Everyone can see your interaction with the ledger, all your history, and all your assets. The right to be forgotten is not at all applicable to blockchains.
Permissionless
At the moment we are seeing a lot of functionality offered by the ledger quite permissionless. Everyone can use the financial services made available. Everyone can create their own application and start delivering to the customers without any clear rules. As the development and maintenance of those platforms will require a certain degree of centralization rules will follow. Parties will be able to offer services only if compliant for example. Being a regulated entity offering services on the blockchain would be for sure a differentiation factor for the business and will drive revenue. Once again technology is not really a thing, nobody cares about that. However in this case the technology could give individuals a cool weapon to play with. The backend will be forced to run on this open and transparent network making all the players in the game on the same level. Using blockchain will also enable financial services to be more easily integrated with other services through common or at least transparent API.
Unfortunately regulation, KYC, and whitelisting are inevitable for having easy-to-use and efficient services, however, the whole blockchain thing scored some good points. Blockchain won’t be disruptive but it has opened a very broad spectrum of possibilities. Blockchain enforces transparency, standardization, and trackability. Everybody will play under the same rules. As we have mentioned multiple times, those rules must be decided by the participants of the network. Which, should be free to join and leave the network when they want. The discussion around this topic is still quite warm but I would write a piece on the rules of consensus soon.
Conclusion
Blockchains are bringing a new field where to play finance. Even though today we are seeing any random person being able to offer financial services this won’t be the case in the long term. This is not because of censoring or evil “big power”. It is only because of how the economy works. As of today, we are all free to open an email server, in the future, we will be able to open our financial exchange! The issue would be that regulation will block you from having any relevant growth unless you comply. Blockchains have demonstrated that financial power can be now taken from institutions, which means that in the process of finding a compromise, we will have much more leverage.
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