Blockchain allows us to opt out of current systems that fail us

Francesca Bercasio, Contributing Writer

To understand why our current systems in place are prone to disruption, one must acknowledge the inefficient nature of humans.

Political, economic and cultural structures have established hierarchies with middlemen in every process. The term used to describe this state is centralization, where trust is concentrated within a few, if not one, authority figures or organizations. Money is one of the oldest concepts used to assign value, but its fallibility lies in that it requires trust to do so.

Take our monetary system. We trust that the U.S. Mint will keep the same metal composition in the production of coins. We trust that the Federal Reserve will manage the supply of dollar bills to maintain their value. We trust that credit agencies, such as Equifax, will report accurate data to other parties. 

The fact is, pennies are not purely made of copper — they are made of zinc coated with copper and stopped being solely copper in 1982. A dollar’s purchasing power has decreased by 86%, with $1 in 1972 worth $6.99 today. Equifax is still reporting erroneous amounts of credit score data, making consumers look like riskier borrowers than they originally were.

You may feel betrayed, but centralized systems perpetuated by humans were always flawed to begin with — often leading to corruption and coercion.

This reality is nothing new and has existed since the onset of human civilization. To fund the Battle of Thermae during the Roman Empire, the Roman authorities decided to decrease the purity of their silver coin, the denarius, by adding other elements to its composition. With more coins in circulation, the government spent more, which in turn, transferred wealth to those maintaining the armies and left the people with worthless money.

There is always a layer of trust involved, but our trust should not be the backbone of the power structures that exist today. With the increasing development and usage of decentralized technologies, our need for this centralized state of trust becomes obsolete and with that, what we hold valuable changes. So if trust is the problem, how are we supposed to exchange value that does not directly depend on it?

The ultimate method of removing the need for trust between centralized figures is through blockchain technology.

Opposite to centralization is decentralization — the distribution of power among every participant involved. Blockchain technology creates a decentralized system by constructing, duplicating and distributing a digital record of all transactions across every computer in a given network.

These networks exist through the facilitation of cryptocurrency. Cryptocurrency, known as “crypto,” is a native digital currency. I use the word “native” because the surface-level difference between a cryptocurrency and a dollar balance shown on your phone is that the dollar balance can become tangible at any point in time as physical bills or coins, whereas cryptocurrency cannot. Cryptocurrencies are enabled by blockchain technology to document every single crypto transaction across their networks. In short, everything is digital.

There are many different cryptocurrencies out there, but within the context of money emerges Bitcoin.

The core difference between a cryptocurrency, such as Bitcoin and our dollar, is that Bitcoins have no central issuer compared to dollars with the Federal Reserve. Instead, Bitcoin relies on all of the computers in its network to produce bitcoins and cross-check their own digital record of bitcoin transactions between each other.

No central issuer means that there is no single point of failure. In order to successfully invalidate transactions, a bad actor would have to control at least 51% of the participating computers. Such attacks require the energy needed to alter the digital record on top of the energy used to validate transactions. This would amount to more computing power than all actors in the network combined, making it not only energy intensive but expensive as well.

From this, it is nearly impossible to alter, change, or revert transactions in the Bitcoin network since a bad-acting computer would be rejected by thousands of other computers with the correct transaction record. In addition, the duplicated and distributed digital record is completely public, for those who are literate in the field to see what’s happening in real-time.

These innovations are new, with the real-life applications of blockchain technology only being 13 years old.

With blockchain technology, the decentralized networks of Bitcoin and cryptocurrency remove our need to trust, providing some of the most compelling alternatives to our modern paradigm of society. We must be ready for this innovation and consider its future implications.