Blockchains aren't primarily about money. The value of blockchain technology isn't in the cryptocurrencies' prices, but in what the technology itself has created. The value of blockchain technology is in trust, by creating a trustless environment. Cryptocurrency is about money, but based in a trustless networked cryptographic state/condition.
Trusting What Happened; Who Did What
The stability of the condition or state in a blockchain is secured by mathematical cryptography and decentralized networking, making it not require the trust of a centralized authority. Trust has purely been in the domain of humans for most of our existence. We needed to remember the history of something, like who did what (actions), or who had what (property). We had leaders and 'wisemen' of the tribe or community keep records in the distant past. Then with record keeping texts and digital mediums as we developed those technological capabilities.
We have centralized authorities as the human-formed nation state to govern the ordering of interactions through communities and hierarchies. Now the trustless network state decentralized consensus formation can replace the nation state centralized power to keep everyone playing by the same rules. Human-created states or conditions of individual or centralized record keeping and maintaining trust, are being replaced by a technological state of decentralized distribution of record keeping based in cryptography that stores information securely and creates a trustless system.
Immutability
Records can't be modified by the whim of a person to lie and engage in fraud. The trustless network state makes lying and fraud almost impossible to accomplish. The record of what happened and who has what is locked into a decentralized database (blockchain immutable ledger) instead of a centralized database that can be modified without everyone else agreeing to it (human brain with fallible memory, paper that can re-written, standard databases that can be altered). The blockchain network state has every cryptographic node verify or witness what ever other node has, and everyone has the same records that can't simply be altered.
We are used to relying on others for their integrity to trust them for what they say happened, or what they say they have. Now we have a trustless environment that tells us what happened without having to trust what any individual says. We can just look at the history in the immutable blockchain data that keeps a record of everything that happens in it.
Book Keeping
To understand the record keeping aspect, we can look at one domain we are all familiar with: monetary exchanges. Record keeping was more distrusted before double-entry bookkeeping came along. In double-entry bookkeeping, a transaction gets recorded twice to balance out what came in and what went out. Transactions involve exchanges, receiving one thing for something else given.
I sell you a flower, you give me a dollar. I record that I had a debit of 1 flower, and a credit of 1 dollar. Double-entry bookkeeping shows how the transactions are happening on an individual basis, rather than simply counting up all the money you made and all the things you sold at the end of the day, week or month. This is how businesses use accounting to keep track of what sells well and what doesn't, allowing them to do better business.
Dishonesty and Fraud
This made money transactions more trustable, but not trustless. After all, these record keeping books were written by people who can be dishonest and engage in fraud. Even with modern computing, it still happened. The biggest frauds in recent US history include the company Enron, the money manager Bernard Madoff, and the investment bank Lehman Brothers.
The books are only as good as the honesty and integrity of the people creating them. Fraud can be created by centralized record keeping. Those who are entrusted with honest record keeping act as middlemen and charge fees to do so, getting to control the information and access to it. Banks and stock exchanges do this, acting as middlemen of trust between people in the world.
Blockchain technology changes things. The cost of trust in financial transactions get reduced (most cryptocurrencies) or possibly removed (Steem cryptocurrency). No longer is a centralized ledger of bookkeeping required to be verified for claims of who has what, who did what, or who owes what. In a decentralized network, the access to that information isn't controlled by a person or group, but becomes publicly accessible for anyone to verify claims (as long as it's a public blockchain ledger). Entries into the ledger can't practically be modified after they are made. It becomes trustless because the mathematical cryptography is the medium of trust that locks in the data. Records are immutable and can't be modified by someone alone. If data is to be changed, the whole network has to reach a consensus to allow it.
This has been done once with Steem I think, when there was a hack early on that required a rollback, and all the witnesses acting as network record-keepers has to agree to do it in order to have the same records and maintain the integrity of the chain of transaction blocks.
The trustless nature of the blockchain cryptographic network state means that you don't need to rely on fallible human bookkeeping to be honest, as all entries are automatically entered by algorithms and become immutable. The ledger isn't in the hands of one person, or one centralized company, but becomes shared for access and verification among different parties who have an interest in keeping the books honest.
Cutting Costs
The cost of record keeping goes down, because accountants aren't needed in each business, and each business doesn't need to trust the accounting books of other businesses. Businesses will have more money to do what they do instead of paying someone or a group of people to deal with transaction record keeping, and trust their honesty or integrity. Middlemen like banks are no longer needed to pay for their trust services. Transparency and freedom is amplified with less control of information in the hands of a few.
Automated Actions
Money interactions can be programmable through smart contracts that can execute actions based on conditions being met. If X, then Y. Buy this when something else happens. Automation can be done with payments of all kinds, from the buying and selling of anything, along with conditions to give money to others based on what they do, like based of the merits of actions to do charitable work, sustainable building, etc.
Human Trust Isn't Obsolete
Trust between humans isn't completely gone. We just don't need to trust others as much in certain areas of human interactions, such as those requiring monetary transactions. Honesty and integrity are still important parts of human interactions and building trust between people to cooperate together. Blockchain technology helps us remove middlemen that gain power over us, be it government or banking institutions.
Cryptocurrency was the first application of the blockchain that was most evident to create and use because it's purely about monetary transactions. Bitcoin did that. Ethereum came along with smart contracts. What comes next? More trustless networking to collaborate and interact. Who knows exactly which ideas can be attached to decentralized record keeping and automated programmed responses to behaviors in various technologically-connected markets, but many people are working on various applications for the highly connected future that lays ahead.
Thank you for your time and attention. I appreciate the knowledge reaching more people. Peace.
References:
- The Accountant Who Changed The World
- Double-entry bookkeeping system
- In blockchain we trust
- How the Blockchain is Redefining Trust
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