How Blockchain Technology is Redefining the Entire Global Economy

Assyria was one of the greatest empires of the ancient world. At their height, they covered a land mass spanning modern day Iraq, Egypt and Turkey.

If there is anyone to thank for Assyria’s rise to power, it’s their merchants. They were positioned perfectly, with huge amounts of traffic travelling through to buy their goods.

And the merchants of ancient Assyria used something we still use today. At the end of trading hours, they would sit down and work out their expenses, as well as goods received and traded. They then documented this information on a stone tablet.

This was the early beginnings of accounting. And while the ledgers we write on today aren’t made out of stone, the idea of a peer-to-peer ledger is sweeping modern industries by storm.

The digital ledger I’m referring to is the blockchain.

It was originally created to record bitcoin transactions. But it can record any transaction you want.

Bob Greifeld, chief executive of the NASDAQ, said of the blockchain:

Blockchain technology continues to redefine not only how the exchange sectors operate, but the global financial economy as a whole.

The technology has grown in popularity within financial circles. And it could be the revolutionary next step towards a better payment system. It’s why banks are one of the most aggressive blockchain investors today.

According to a Greenwich Associates report, financial and technology markets are expected to invest US$1 billion in blockchain technology this year.

Business Insider Australia also highlighted earlier this year:

42 investment banks have signed up to a consortium experimenting with blockchain technology, banks like JPMorgan and pouring cash into start-ups experimenting with the stuff, and Goldman Sachs has declared the technology will change “well, everything”.

It also has various benefits for sectors like travel and telecommunications. But let’s stick with the payment system for now.

There are only minor differences between the blockchain and how we currently transact electronically. Yet these differences could lead to huge benefits in the long run.

Let me explain how.

Cutting out the banks

Let’s say I want to buy a bag of oranges from you. What has to happen? Well, I need to know the price you charge for your oranges, as well as the details of how I can pay you. You might give me a merchant account into which I can make payments to.

I can then jump on my smartphone, whip out my internet banking app, and transfer you the money. That sounds simple enough. But what you might not appreciate is that between me sending the payment and you receiving it, there are many steps involved.

Once I ‘confirm’ the payment, it’s sent to a payment gateway. This could be a bank or specialised financial service provider. The gateway encrypts the payment information and sends it to payment processes for approval. Once approved, I get a notification telling me of my approved payment.

So far, two seconds have passed.

Shortly after, my bank receives the transaction details. They then send money from my account to yours.  Sounds simple enough, doesn’t it? Yet there are issues inherent within this system.

First, hackers could steal my personal information, even if my payment is encrypted. Second, transaction information is not always transparent. This could cause problems if any troubles arose with the payment. Transaction volumes can also sometimes cause bottlenecks within the system.

These are all problems non-existent with the blockchain.

If we were to do the same transaction through the blockchain, there would only be two steps. First, I enter my private key (that only I know) and send the transaction details out into the blockchain. Second, for our transaction to be verified, miners put our information through mathematical formulas, turning it into a random sequence of letters and numbers — known as a hash.

This hash is stored at the end of the blockchain at that point in time. You will have received your payment, and your transaction is on the blockchain.

Who are these miners? They can be anyone. To be a miner, all you need is a lot of computing power to solve complex mathematical equations to create hashes.

You can see the advantages over the traditional electronic payment system we use today. We’ve cut out the third party, the bank. The market (miners) competes to verify our payment. And our transactions are completely transparent.

What about privacy? If you wanted to keep a transaction private, there are private blockchain networks set up for people to do so. Yet many argue these defeat the purpose of having a transparent network.

There’s an even stronger case for the blockchain when transferring money internationally.

According to the Commonwealth Bank of Australia [ASX:CBA], sending money overseas will cost you $30 by branch and $22 via NetBank. Cancelling your transfer will set you back an extra $25 per request plus overseas banking costs. Tracing money transferred overseas costs an extra $25 per investigation.

All these fees are non-existent in the blockchain. And instead of the 2–5 businesses days it takes to transfer money internationally, international bitcoin transactions take 10 minutes.

To explain every detail about the blockchain, I’d need to write a book…and do a fair bit more research! But I hope this gives you a good idea of how it all works.

But what about the other advantages of blockchain technology?

Hotels and everything else

Webjet [ASX:WEB] manages thousands of hotel bookings daily. They are already the leading online travel agency in Australia and New Zealand. But sitting idle at the top is not their style. Blockchain technology has the potential to add efficiencies in the booking process.

Webjet claims their blockchain hotel bookings will be a world first in its sector. The project took around six months, with help from Microsoft Corp [NASDAQ:MSFT].

Webjet’s managing director, John Guscic, explained how the blockchain will streamline the travel industry:

Globally, hotel room wholesaling is a hundred-billion-dollar market place. Every day there are millions of transactions taking place and a single hotel stay could involve five more transactions in the distribution chain.

This market place can be prone to data discrepancies due to the volume of bookings passing through multiple systems. Between five and 10 per cent of bookings can be impacted or, in order words, up to 10 billion dollars-worth of transactions.

Tech giants like Microsoft, Deloitte and International Business Machine Inc. [NYSE:IBM] are seeing growing demand for blockchain technology. And it’s why all of them now offer blockchain as a service.

It’s aimed at teaching individuals and firms how to use the blockchain. According to Microsoft’s official website, it allows parties to play, learn and fail fast.

Blockchain technology is more widely available than ever. And this, I believe, will be the reason for blockchain technology exploding in the years to come. It’s an investment wave you won’t want to miss out on.

Regards,

Härje Ronngard,

Contributing Editor, Money Morning

PS: Blockchain technology could revolutionise many industries. From the payment system to smart contracts, the blockchain provides transparency and empowers users. But it’s only the start of the future tech making its way into our daily lives.

Autonomous vehicles, automated construction and enhanced memory are just some of the technologies we could all be using in just a few years’ time.

Knowing about these technologies beforehand can give you a huge investment advantage. By getting into revolutionary tech stocks early, you could potentially earn returns of 400% or more. And this is exactly what tech specialist Sam Volkering does for subscribers of his advisory service, Revolutionary Tech Investor.

Sam’s top three active investments, which are looking to profit from emerging technologies, are up 192.7%, 353.3% and 422.7%.

To find out more click here.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.


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