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Blockchain: What is it and why should you care?

By Dean Whittaker

In the book, The Truth Machine: Blockchain and the Future of Everything, Michael Casey and Paul Vigna, point out that our civilization is built on trust.  The introduction of the double-entry accounting system allowed for the expansion of trade without having to physically move gold from one location to another and thereby created our banking system.  The books showed who owned and owed what.  Commerce flourished as a result.

Similarly, Blockchain has the potential to greatly reduce the friction in transactions and expedite commerce by eliminating or significantly reducing the “managers of trust” such as bankers, lawyers, and accountants.  By creating trust, Blockchain is changing how business is done.

In the past, we trusted our banks (a middle-man in financial transactions for which they are paid a fee) because the double-entry accounting system of debits and credits created “truth.” However, we learned in 2008 that some of our banks had two sets of books, the ones the public saw which showed Lehman Brothers as a highly profitable well-funded bank in which their “off the books” debt was hidden from public view, and the real books which showed that the bank was, in fact, a highly leveraged house-of-cards which collapsed and helped bring on the Great Recession.

Blockchain is a highly-secure distributed digital ledger. It is a disruptive technology that creates trust by distributing the encrypted digital ledger data across multiple computer system that must agree with each other before a transaction will be processed, and in the process, creates an encrypted block in the chain of transactions.

Blockchain is the technology that supports digital currency (crypto-currency) by providing a secure peer-to-peer digital exchange of value.  It’s a non-sovereign controlled currency outside of governments’ ability to manipulate its value by restricting or expanding (printing more money) the money supply.

Beyond supporting crypto-currencies, Blockchain also is used to create “smart contracts.”  These contracts create a secure way to transfer assets such as real estate.  It traces the ownership from seller to buyer to seller without the need for title companies to verify ownership, lawyers to process the transaction, or bankers to transfer the funds.

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