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An Insight Into
Clark's Notes

As much as I love business, I like to learn about a diversity of things and what you’ll find here is mostly just what’s on my mind. Stories that I have, things I’ve been up to lately, and of course, what I’m learning about.

Cryptocurrency And Blockchain Explained (In Less Than 60 Seconds)

The financial services industry is mostly about tracking and moving assets. Blockchain is a technology that helps track and move digital assets. Since most money is represented digitally, blockchain is also solution to track and move digital money, hence cryptocurrency. The term cryptocurrency refers to digital money that can’t be faked. Unlike a song or movie that you can pirate and send to millions of people on the internet, cryptocurrency has an encrypted trail that allows you to prove or disprove that this money is an original copy. By exchanging cryptocurrency recorded on a blockchain, you’re able to tell that this is real money, owned by only one person, and if that owner chooses, they can transfer it to anyone, just like cash.

But can’t we already do this? How is this different from PayPal or Venmo?

Digital money is nothing more than numbers recorded by bookkeepers on ledgers that indicate how much money is in each account. When you transfer money from one bank account to another, those two banks either need to have an account with each other or they need to have a common bank account. If two banks have accounts with each other, then the banks can transfer money to each other by changing the numbers in each other's accounts. If they don’t bank with each other, then they need a common bank account with a bigger bank, known as a clearing bank. That clearing bank then takes money out of Bank A’s account and puts it in Bank B’s account. This is all done by manipulating numbers on ledgers. At no point do banks ever fill trucks full of cash and drive it over to the other banks to pay each other.

There are many problems with this system:

  1. Banks have a habit of printing and lending out too much money, which puts them at risk of losing or devaluing your money.

  2. It requires a lot more work from a lot more people than is necessary. Instead of Bob and Alice recording a transaction, Bob, Alice, Bob’s Bank, Alice’s Bank, and sometimes up to three other clearing banks and central banks need to get involved for one transaction. This is why wire transfers are so expensive and take so long.

  3. Banks can stop transactions at will and this power can be weaponized by politicians, used to prevent ethical business transactions, and often excludes poor economies from the global financial system simply because big banks don’t want to deal with small banks in poor countries.

If these don’t seem like problems to you, then you’re likely part of the 1 in 8 people who happen to live in a politically stable country with access to strong banks and a stable currency. But if you are part of the 1 in 8, the world of finance could still be a lot more equitable, transparent, and democratic even for you.

What blockchain allows us to do is to become our own banks for all our digital assets. Instead of trusting a bank or intermediary (like PayPal) with your money, you trust a computer program that can't be changed or hacked, because it's being run and verified on thousands of computer servers at once. Instead of one banks saying “Alice has $1,000” tens of thousand of people all agree that “Alice has $1,000” and if anyone says otherwise, they are simply ignored. We used to have to trust bank to handle our money, because they are the only people who can protect it from hackers and thieves. Blockchain technology operates despite the fact that it’s completely open to hackers and thieves.

For the first time, people can own and control digital assets. Before blockchain, everything you own digitally has been controlled by another party. They have always had the final say of what you can and cannot do with your money and they've made a handsome profit off of you by maintaining this control. By democratizing finance through blockchain, no one person can manipulate monetary policy or the supply of money. No one runs the risk of losing your money. No one person needs to be present to allow your transactions to go through. The only thing you need to trust is the computer program, which can’t be changed unless the majority of the people running the system come together and take a vote on a specific course of action. Since nobody is on top taking a cut, it means higher earnings for savers, lower interest rates for borrowers, and zero corruption from politicians and bankers.




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