The said document was detailed on how blockchain can help curb the various problems associated with fiat currency and as it is being experienced in our world today.
I would like to highlight the key challenges associated with the issue of finance and the creation of money in the traditional finance system (Fiat system). This is in no order of importance.
- Fiat has unlimited supply: It is noteworthy to mention that government financial institutions recklessly print money whenever there is a need and this, in the long run, helps to push down the value of items, where too much money is chasing very few goods and services.
- Timestamp transactions: The transactions from the fiat system may not be efficiently tracked as a result of the unavailability of timestamps to every transaction. Because of that, the executed transactions could also be manipulated to suit the reckless desires of those who are in custody and control of the financial system.
- Most of the fiat form of money is backed by nothing: As a result of the inability to back the production of the paper money with a substance of worthy evaluation, most financial institutions of nations eventually go-ahead to produce more of the paper currency and end up causing the money to lose its value.
The above key challenges have led to the present challenges faced by nations all over the world. As this became more evident when Bitcoin was created in 2009.
However, the founder of Bitcoin (Satoshi Nakamoto) was of the opinion that for money to have its value which he has based on mathematical fundamentals, it must have some new characteristics which include the following:
- Limited supply: He stated that Bitcoin will only have a limited supply of 21 million in total. As such there can only be that amount in existence. Thereby making it impossible for anyone to circumvent the process for the existence of the total amount that would be ever created.
- Anonymity: Bitcoin is a peer-to-peer (P2P) electronic payment system that enables people to make transaction payments without the necessity to meet themselves in person. Instead, Bitcoin leverages a trusted network of mathematical algorithms that require no human intervention.
The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party.
The necessity to announce all transactions publicly precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous. The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone.
However, this is similar to the kind of information that is often transmitted by the contemporaries in the stock exchanges, where the time and size of individual trades which is called the “tape”, is often made public, but without telling who the participants are.
- Tamperproof: In order to remove any issue of fraud and multiple spending, the transactions are confirmed on the blockchain to validate the authenticity of payments as they are on an open ledger system for the sake of transparency. This would deter criminal tendency who would want to claim they have made payments without a block hash confirmation on the blockchain.
- Network: The system operates on a node synchronization, where the node always considers that the longest chain within the system should be the correct one and will keep working on extending it.
If two nodes broadcast different versions of the next block simultaneously, then some nodes may receive one or the other first as stated in the Bitcoin white paper. In that case, they work on the first one they received, but save the other branch in case it becomes longer.
It is expected that the tie of the chain will be broken when the next proof-of-work is found and one branch becomes longer; the nodes that were working on the other branch will then switch to the longer one. This on its own has given the Bitcoin network one of its strongest fundamentals for which it is expected to stand the test of time and as well make it the future of money.
It is expedient that financial institutions transit from the status quo of the traditional financial system by adopting blockchain technology to advance the financial future in a Klever way.