• Financial change for the better through the Blockchain

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    RAHUL MAIRA

    In the 1980s, the world was laying the cornerstone of the internet for modern era developments. And until today, we are noticing how the internet is changing the lives of billions of people. When the internet initially surfaced, it was used primarily by the academe and then, it slowly moved into public space.

    Today, it is accessible to more than half of the world’s population. It has allowed new types of business to flourish through the creation of online marketplaces, as well as created new online identities. It has led to faster, wider and cheaper information consumption.

    No one knew the internet of the 1980s would have such a profound impact within the next decades on human existence. We are once again close to potentially one of the biggest paradigm shifts in the world of technology.
    This is an advancement that fundamentally changes the way we look at our economy, our governance systems, and the role of businesses. It could change our conceptual understanding of trade, ownership and trust. Yes, those bold claims are possible in the near future because of the recent development of the Blockchain.
    The blockchain is the underlying technology that is the foundation for bitcoin, a cryptocurrency that was introduced as a white paper right after the 2008 financial crisis. It is the technology of the future, which will institutionalize changes across various industries.

    For starters, let’s take a financial institution. Any bank or financial institution has eight key functions that it can undertake. These are: to authenticate value, to transfer value, to fund or invest, to ensure value and manage risk, to store value, to lend value, to exchange value and to audit value. When I make a transaction of P10,000 from me to Benny Hill, I would go via a trusted third-party. This would usually be a bank, which would validate, transfer value and record the transaction in its books. For this service, the bank would charge a fee and the record would be in private. This process would take a minimum of one day for a local transaction. If it was an international transaction, it could take anywhere from 3-10 days or more with endless paperwork.

    Now, we all understand that any centralized body is at a high risk of attack and, if breached, can lead to a catastrophic failure of the system. Sometimes, human failure can lead to wrong records and corrupt actions can lead to deleted records that can illegally benefit a few. With the blockchain, the technology for all these issues is resolved. For simplicity, let’s treat the blockchain as a chronological database. It is an open ledger that can be viewed by the public and is distributed and synchronized to all those that manage the ledger, also known as miners. Each transaction is treated individually, has a time stamp, and is organized as a block of its own. Each block can have its own preset conditions. When a new transaction enters the system, the miners validate the transaction and the first one to do so is rewarded. Once the transaction is validated it is added to the previous block with a chain or lock (encrypted key), hence, the name blockchain.

    This entry is now permanent, immutable, and secured by cryptography, which can never be tampered with. Adding the element of being a distributed ledger, it becomes even harder to attach the system as all miners have the updated version of the ledger. Any wrong transaction will not go through as the system will detect illegitimate transactions on the ledger based on the miners solving complex mathematical problems. The blockchain replaces the trusted third-party with a publicly distributed network that is constantly updating transaction and sharing it with all miners. It is reducing the cost of transactions, as the reward to a miner is very minimal. Most importantly, it is reducing the time taken to do these transactions from 3-10 days to within minutes or even seconds while keeping the network secure from any breach.

    That was just the tip of the iceberg with what the blockchain can do. Thinking of our daily lives, how will the blockchain affect me and my family? Each block can have its own preset conditions, which could be the icing on the cake here. In the future, you could program the pocket money you give to your daughter or son to be used for non-alcoholic purchases only. Governments could dispense rebates to those in need—not to the ones who have excess funds—with no leakages. They could control the spending behavior of the grants. A government fund of P1,000.00 per citizen for rice purchases could only be redeemed at rice shops. If not redeemed within the timeline, this would be transferred back to the government treasury.

    Companies could devise unique benefits and make sure that employees don’t gamble away their additional benefits. Rebit.ph is a company that allows international remittances using bitcoin with a ‘No Fees Policy.’ A money transfer to a family member in need would be instant and secure. Bitmarket.ph is a company that allows merchant payments using bitcoin. Coin.ph allows you to pay your utility bills via bitcoin in a secure fashion while leaving an immutable trail of your transactions.

    Investing and tracking your assets would be easier and estimating your credit worthiness would become seamless in the future. This would reduce your time in administrative hassles. If you run a business, setting limits of expenses and conditions for expenses will become easier to account for and implement. Recording your personal expenses and knowing your spending behavior can improve your savings rate and investments decisions.

    The blockchain will be used in the future to disrupt the central authority or trusted third-party as there is a severe lack of trust in our current systems, based on today’s global economic and social affairs. This is our chance to re-engineer the broken fabric of our social and economic society into a more secure, transparent and dependent system. Companies across the globe like Xapa, Openbazaar, Ujomusic, Onename, and companies in the Philippines like Coins.ph, Rebit.ph and bitmarket.ph are conceptually changing our understanding of trade, ownership, and trust.

    The blockchain has a long way ahead of itself. There will be many bureaucratic hurdles ahead as the scale of disruption is massive, ranging across economies, governments, and financial institutions. However, as Heraclitus said, “Change is the only constant in life.”

    Rahul Maira is the vice president of Sales and Operations at MoneyMax.ph, a financial comparison website aiming to help Filipinos save money through diligent comparisons of financial products.

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