Peter Kent - Cryptocurrency All-in-One For Dummies

Many blockchains operate as democracies. A majority (51 percent) of a blockchain’s nodes network is needed to make a change.

Data sovereignty and digital privacy are going to be huge topics in the future. Fraud prevention will be easier because if the entire economy is utilizing a cryptocurrency, then there will always be an auditable trail inside the blockchain that secures it. This is enticing for law enforcement but a nightmare for consumer privacy.

From a customer perspective, there’s already an audit trail for everything you purchase with a credit or debit card. From an institutional perspective, it’s beneficial to have audit trails because it increases transparency of documentation and life cycles of the movements of these assets between different regions. It adds legitimacy to the trading of assets and allows them to bake compliance into their day-to-day transactions.

The “right to be forgotten” rules in Europe, which allow citizens the right to not have their data forever propagated on the Internet, are a difficult challenge for blockchains, because blockchains can never forget. Governments and corporations would have permanent historical records of every transaction, which could be devastating to national security if they were exposed to the public. In a company’s case, it may allow their competitors to have an inside scoop on how that company is investing.

The biggest challenge to using a permissionless blockchain such as Ethereum or Bitcoin would be in guaranteeing that you haven’t sent money to an OFAC (Office of Foreign Assets Control) country to support terrorism. The answer is that you can’t, because they are somewhat anonymous and anyone can open a wallet. It is possible to create algorithms to trace transaction movement — the U.S. government has been doing this for years — but anyone can move value in a permissionless world.

The OFAC maintains sanctions on specific organizations or individuals in what are considered high-threat countries. The government is unable to track the history of transactions when people and organizations use permissionless platforms anonymously.

The need for KYC and AML makes a case for the permissioned blockchain in the shared ledger space. The software company R3 developed Corda, a private and permissioned blockchain-like platform, to meet many of these challenges directly. They specifically do not globally broadcast the data from their participants. This keeps the data within the Corda blockchain private, and it was the primary nonfunctional requirement requested by the more than 75 banks that worked with R3 to adopt blockchain technology. They need to maintain their privacy and meet strong regulatory demands.

Blockchains will usher in many new types of securities and investment products. New markets will be opening with more efficient ways of calculating risk because collateral will be a lot more transparent and fungible across institutions when they account for it within a blockchain back system.

Blockchain technology also has applications in helping reduce scams within the global warehouse market for fraudulent double-sold goods. Blockchain entries enable manufacturers and regulators to document the provenance of products and, in turn, allow buyers to check the authenticity of what they’re buying. Several solutions exist in the market, including Everledger and Provenance.

Hernando de Soto, the famous Peruvian economist, estimates that providing the world’s poor with titles for their land, homes, and unregistered businesses would unlock $9.3 trillion in assets. This is what is meant by the term dead capital : unfinanceable real property owned by people and organizations.

It is imaginable that countries that can free their dead capital will be able to bundle and sell the interests in these assets across a global marketplace. This would include assets like transparent mortgage-backed securities for new real estate developments in Colombia or Peru.

In the future, countries will be able to free up their dead capital. Owners of undeveloped land and un-financeable properties will then have the opportunity to sell the interests in these assets across a global marketplace.

These assets will be appealing because asset managers will be able to actively parse underperforming assets given the transparency and capability of one being substituted in place of another through blockchain-based technology. The use of blockchains to manage these assets will give managers the power always to own top-performing securities, removing the rotten apples, reclassifying them, and selling them as new securities.

For non-institutional customers, micro-investments will be an attractive outlet that is enabled globally and locally through blockchain trading platforms. Using blockchain technology will also give them the means of investing in companies and their specific activities without having minimums or going through intermediaries that take a percentage of the investment.

Decentralized autonomous organizations (DAOs) are already out there and making DAO investment pools happen for a few risk-tolerant and more technically savvy investors. It may be some time before an institutional investor utilizes one of these vehicles, or a portfolio manager recommends putting money into a DAO-based vehicle for their clients.

DAOs remove a lot of the necessary paperwork and bureaucracy involved in investing by creating a blockchain-based voting system and giving shares to those who invest in their product. To any blockchain, the “code as law” concept makes it unforgiving. The risks are many, particularly when poorly written code executes in unintended ways. The consequences are that hacks to this system can be severe. The transparent nature of the system and the poor code give hackers a wider attack vector and allow them to attack multiple times as they gain more and more information with each attack.

In the following section, we discuss the effects and benefits of blockchain technology on the world economy.

Our world is global, and companies don’t have borders. Instant and nearly free payroll is enticing and would save a lot of headaches for organizations. But there are drawbacks, too.

The largest risks will be with the loss of funds through hacking. If you’re compensated in cryptocurrency, and you are hacked, it will be impossible to retrieve your funds. There’s no dispute resolution center. There’s no customer service to complain to for the loss of these funds. Thieves of digital currency have global access while being somewhat anonymous. The hacker could be anywhere.

With the current structure of blockchains, consumers are responsible for their own security. Currently, customers don’t have the main burden of protecting and insuring themselves from a loss. Larger companies and governments offer protection and insurance, and they have for as long as anyone can remember. Regular individuals haven’t had to protect themselves in this manner since they stopped holding their own gold during medieval times (more or less).

These challenges haven’t stopped companies from processing payroll using cryptocurrency. Bitwage and BitPay are both competing in the market for payroll processing via Bitcoin. Bitwage allows employees and independent contractors to receive part of their paychecks in cryptocurrency, even if their employers don’t offer the option. BitPay, on the other hand, has payroll service providers Zuman and Incoin integrated into its payment and payroll APIs. Again, early adoption is happening in areas that had nonexistent or inadequate solutions before.