Blockchain – just a hype?
Nico Spycher blogs from the lessons of CAS Digital Finance on the subject of blockchain:
In the low of the financial crisis (November 2008), the idea of a digital currency has been published by the pseudonym Satoshi Nakamoto:
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without the burdens of going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as honest nodes control the most CPU power on the network, they can generate the longest chain and outpace any attackers. The network itself requires minimal structure. Messages are broadcasted on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
The readable whitepaper can be found at the following link.
The blockchain is a shared distributed ledger, which is based on a comprehensive network. Each transaction (e.g. a transfer of an amount between wallets) is written into the blockchain. Wallets have a secret data block called the „private key“ or „seed“, which is used to sign transactions by providing a mathematical proof that they come from the owner. The signature also prevents the transaction from being modified after the submission. The confirmation (mathematical proof) is done through the network using a process called mining. All transactions are distributed among each user.
Ethereum – Bitcoin 2.0?
Bitcoin is based on a relatively simple programming language. Forth has some essential limitations, among other things for example it is not universally programmable i.e. emulation of a process is not readily possible. Furthermore, only limited information from the blockchain can be processed.
-> if higher requirements exist, it gets complex with Bitcoin
The idea behind Ethereum is to equip a blockchain with a turing-complete programming language. Instead of transactions ought also program code and self-executing contracts to be passed. In addition, addresses can be semi-intelligent contracts that allow certain actions to be executed under certain conditions. Ethereum is intended to create not only a decentralized currency but also a decentralized Internet. The Web 3.0. The dapps – decentralized applications – should bring everything that is possible to the blockchain.
DAO – A Perpetuum Mobile in the Financial System?
DAO is standing for decentralized autonomous organization (DAO), sometimes also known as decentralized autonomous corporation (DAC), an organization form which is managed based on the rules, that have been coded as a computer program. These are so-called Smart Contracts. All transactions and the ruling are stored on the blockchain.
THE DAO, a VC funding organized as a DAO, which in June 2016 had very successfully generated Tokens worth 150 million USD. This DAO is entrepreneurial. Every DAO token owner has the possibility to submit a so-called proposal, the created SmartContract in the blockchain regulates the details of the investment. Subsequently, the owners agree whether the contract is concluded. The generated income can either be paid out or reinvested.
Bitcoin vs. Ethereum
|# Token||21m (ACT:16m)||∞ (ACT: 80m)|
|Compensation Miner||12.5 (decreasing)||5|
|Speed of Transaction||10min||14sek|
|Type of Verification||Proof of Work||Proof of Work|
|Programming Language||Forth||Solibity und Serpent|
|Precondition for Mining||ASICS||Grafikkarte|
In the canton of Zug in Switzerland, an ecosystem has been created with a large number of start-ups around the blockchain scene. The policy has recognized the opportunities to position the region as „crypto-valley“ worldwide. As the first international authority, the administration in Zug accepts Bitcoin as a means of payment since 1 July 2016. The region has the goal to become the global center for crypto-currencies. Various association, e.g. „Bitcoin Association Switzerland“ or „Digital Finance Compliance Association (DFCA)“ were established to create the conditions for a successful location in that industry.
The current trend of the Sharing Economy seeks to decentralize any type of service in a peer-to-peer model. We have seen this with companies offering decentralized taxis and hotel services, such as Uber and Airbnb. Technologies such as the smartphone enable apps to connect drivers with rider or tenant with homeowner. These services are more convenient and competitive than their traditional counterparts. At the same time, it offers income opportunities for people who have not previously existed.
The potential of blockchain promises that outsiders can offer financial services with far less capital respectively grant access based on the P2P approach. Access to capital would no longer be the big hurdle that people limit to be innovative. Smart contracts can offer just as much benefits as the financial instruments of traditional companies. These platforms will equalize market conditions for innovative people with limited financial resources.
The start into the blockchain era has thus fallen, but this is only the beginning of a new and revolutionary future. I can hardly get a process or technology that is not affected by blockchain in the future. This new technology will change the financial industry if not revolutionize it and will not keep make up from other industries.