The world is waking up to the impressive capabilities of the blockchain.
As a foundational technology that things can be “built on top” of, the potential applications of the blockchain go way beyond just payments or cryptocurrencies. In fact, the blockchain could revolutionize how we interact with intellectual property, capital markets, insurance, healthcare, government, and many other sectors.
Introducing Smart Contracts
In particular, an exciting enabler of blockchain technology is the concept of self-executing “smart contracts”.
Today’s infographic comes from Etherparty, a smart contract creation tool, and it helps provide a welcoming introduction to how smart contracts work on the blockchain.
Smart contracts are going to change everything from the legal industry to the backbone of the stock market.
Here’s how these self-executing contracts actually work.
The Anatomy of a Smart Contract
Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman. Built upon the blockchain, a smart contract is usually:
- Pre-written logic in the form of computer code
- Stored and replicated on the blockchain
- Executed and run by the network of computers running the blockchain
- Can result in updates to accounts on the ledger (i.e. payment for an executed contract)
Using the Ethereum platform, smart contracts can be programmed using basic logic. On the most basic level, they can:
- Perform calculations (i.e. calculating interest)
- Store information (i.e. membership records)
- Send transactions to other accounts (i.e. payment for a good or service)
But most importantly, it is important to know that smart contracts are autonomous. They are not controlled by anyone – instead, they self-execute based on a set of instructions that two parties have agreed to (ie. the code).
Benefits of Smart Contracts
Smart contracts are appealing for a variety of reasons:
- Autonomy: There is no need to rely on third parties, which could be biased or not have your interests at heart.
- Trust: Your documents are encrypted on a shared ledger, and all parties can have access to them.
- Redundancy: Documents are duplicated many times over on the blockchain, and can’t ever be “lost”.
- Safety: Documents are encrypted, making them near-impenetrable by hackers.
- Speed: These contracts automatically self-execute, saving you precious time.
- Savings: Smart contracts save you money by taking out the middleman.
- Precision: Smart contracts execute the exact code provided, ensuring zero errors.
- Transparency: For organizations like governments, they could add another level of transparency to dealings.
The blockchain is already a disruptive technology, and with these benefits – the potential behind smart contracts is another facet to be excited about.
The 7 Major Flaws of the Global Financial System
Since the invention of banking, the global financial system has increasingly become more centralized. Here are the big flaws it has, as a result.
The 7 Major Flaws of the Global Financial System
Since the invention of banking, the global financial system has become increasingly centralized.
In the modern system, central banks now control everything from interest rates to the issuance of currency, while government regulators, corporations, and intergovernmental organizations wield unparalleled influence at the top of this crucial food chain.
There is no doubt that this centralization has led to the creation of massive amounts of wealth, especially to those properly connected to the financial system. However, the same centralization has also arguably contributed to many global challenges and risks we face today.
Flaws of the Global Financial System
Today’s infographic comes to us from investment app Abra, and it highlights the seven major flaws of the global financial system, ranging from the lack of basic access to financial services to growing inequality.
1. Billions of people globally remain unbanked
To participate in the global financial sector, whether it is to make a digital payment or manage one’s wealth, one must have access to a bank account. However, 1.7 billion adults worldwide remain unbanked, having zero access to an account with a financial institution or a mobile money provider.
2. Global financial literacy remains low
For people to successfully use financial services and markets, they must have some degree of financial literacy. According to a recent global survey, just 1-in-3 people show an understanding of basic financial concepts, with most of these people living in high income economies.
Without an understanding of key concepts in finance, it makes it difficult for the majority of the population to make the right decisions – and to build wealth.
3. High intermediary costs and slow transactions
Once a person has access to financial services, sending and storing money should be inexpensive and fast.
However, just the opposite is true. Around the globe, the average cost of a remittance is 7.01% in fees per transaction – and when using banks, that rises to 10.53%. Even worse, these transactions can take days at a time, which seems quite unnecessary in today’s digital era.
4. Low trust in financial institutions and governments
The financial sector is the least trusted business sector globally, with only a 57% level of trust according to Edelman. Meanwhile, trust in governments is even lower, with only 40% trusting the U.S. government, and the global country average sitting at 47%.
5. Rising global inequality
In a centralized system, financial markets tend to be dominated by those who are best connected to them.
These are people who have:
- Access to many financial opportunities and asset classes
- Capital to deploy
- Informational advantages
- Access to financial expertise
In fact, according to recent data on global wealth concentration, the top 1% own 47% of all household wealth, while the top 10% hold roughly 85%.
On the other end of the spectrum, the vast majority of people have little to no financial assets to even start building wealth. Not only are many people living paycheck to paycheck – but they also don’t have access to assets that can create wealth, like stocks, bonds, mutual funds, or ETFs.
6. Currency manipulation and censorship
In a centralized system, countries have the power to manipulate and devalue fiat currencies, and this can have a devastating effect on markets and the lives of citizens.
In Venezuela, for example, the government has continually devalued its currency, creating runaway hyperinflation as a result. The last major currency manipulation in 2018 increased the price of a cup of coffee by over 772,400% in six months.
Further, centralized power also gives governments and financial institutions the ability to financially censor citizens, by taking actions such as freezing accounts, denying access to payment systems, removing funds from accounts, and denying the retrieval of funds during bank runs.
7. The build-up of systemic risk
Finally, centralization creates one final and important drawback.
With financial power concentrated with just a select few institutions, such as central banks and “too big too fail” companies, it means that one abject failure can decimate an entire system.
This happened in 2008 as U.S. subprime mortgages turned out to be an Achilles Heel for bank balance sheets, creating a ripple effect throughout the globe. Centralization means all eggs in one basket – and if that basket breaks it can possibly lead to the destruction of wealth on a large scale.
The Future of the Global Financial System?
The risks and drawbacks of centralization to the global financial system are well known, however there has never been much of a real alternative – until now.
With the proliferation of mobile phones and internet access, as well as the development of decentralization technologies like the blockchain, it may be possible to build an entirely new financial system.
But is the world ready?
Infographic: How the Blockchain is Powering Our Future
The blockchain is already well-known for its disruptive potential in financial applications, but it’s actual impact will be much more far-reaching beyond that.
The future is bright, and it’s driven by the blockchain.
Blockchain technology is already turning the financial industry upside down through its disruptive applications, but finance is only the tip of the iceberg. The blockchain’s true scope is in its ability to change the way you do things every day – like voting, travelling, or going to the doctor.
The Future of Blockchain
Today’s infographic comes to us from HIVE Blockchain Technologies, and it gives us a glimpse into the potential of blockchain technology beyond the world of finance.
While the blockchain is primarily associated with cryptocurrencies and the financial industry, the true potential of blockchain technology is much broader.
Innovative startups are already finding ways to leverage blockchain technology to give facelifts to nearly every industry imaginable, changing traditional practices to make way for new, disruptive business models.
It’s difficult to imagine an area of life that won’t lend itself to a blockchain-fueled upgrade.
In its current form, the blockchain works something like this:
- Party A wants to transact with Party B
- This transaction is recorded on the blockchain as a block of encrypted data
- This block is then broadcast to every participant in the blockchain network. The block itself is visible to all, but sensitive information is encrypted to protect the privacy of both parties
- Each participant on the blockchain checks the validity of the block, confirming that everyone has the same version of encrypted information to eliminate the possibility of tampering
- Once verified, the block is added to the chain. Once added, it can’t be moved, changed, or tampered with
- Now that the transaction has been verified, it proceeds as planned
Currently this technology is primarily used for financial transactions, but it can also be used to exchange information, contracts, and official records.
The Blockchain’s Limitless Potential
The unique design of the blockchain makes it ideal for situations requiring:
Transactions are virtually tamper-proof. Because each participant on the network checks each block for consistency, trying to hack the blockchain would be like trying to sneak through a single door guarded by a hundred dogs. It can’t be done.
Each block is visible to every member of the network, ensuring trust between parties.
Because a blockchain has no borders, it allows for secure collaboration between parties sharing any kind of transaction.
As a result of these traits, the blockchain has limitless potential in all kinds of applications.
Future Blockchain Uses
Here are just some examples of future blockchain uses.
The blockchain can be used in business and government to increase transparency between parties, reduce corruption, and streamline bureaucracy. Transactions are tamper-proof and open to the public eye, allowing everything from rental agreements to national elections to be made fair and equitable.
The blockchain has the potential to improve medical access and efficiency. By allowing patient records to be shared securely between healthcare providers, doctors can bring all that information together to improve their diagnoses and develop more holistic treatment plans for individual patients.
With the wealth of patient data collated on the network, blockchain technology can help to advance more sophisticated medical research, potentially curing diseases or providing insights for more effective treatments.
Identity theft could also become a thing of the past with blockchain and biometrics. All of your personal identity information – even your passport, educational records, and driving licence – can be securely stored on the blockchain. Because your data is linked to biometrics unique to you and impossible to forge, the information is safe from fraud.
But these are just some examples – and the blockchain will impact nearly every facet of our lives, allowing service providers collaborate with one another to give you unique, personalized service, when you need it.
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