A Simple Intro to Cryptocurrency and Blockchain Technology
New and exciting ways cryptocurrency and blockchain tech might revolutionize not only real estate but many other industries!
Many people only think about cryptocurrency as a store of value or investment potential, but it’s much more than that. Blockchain technology has many innovative uses that stretch far beyond a means of exchange and into the realms of artificial hearts, self-driving vehicles, music rights, and much more, including the future of real estate.
For those of you who are not too familiar with cryptocurrency and blockchain technology yet, let’s talk about some basic concepts and its underlying technology, then we’ll discuss the big picture of how it might affect our future.
The Sharing Economy
Cryptocurrency has developed hand in hand with the philosophy of the “Sharing Economy.” This is a peer-to-peer economic and social activity involving online transactions and can in many cases have no hierarchy and no middle-man, such as a bank for example, taking out their fee. It developed during a time of frustration with the policies of Wall Street and central banks, commercial banks, and hedge funds. People wanted to take control of their own money. It remains to be seen if this will be the outcome or not, as now central banks are developing their own forms of cryptocurrencies.
What is cryptocurrency?
Cryptocurrency is digital, internet-based currency that allows for instantaneous transactions and borderless transfers of ownership, and can provide a means of personal wealth that’s protected from third party control or confiscation. Cryptocurrency transactions are verified and recorded by means of calculations on a distributed and decentralized ledger called a blockchain.
Cryptocurrency is held in “wallets” which are digital addresses that can be in the form of software or even a piece of paper. You used to be able to buy physical coin shaped wallets, and while they still work, they are more of a novelty now. You could have a “wallet” that’s just a piece of paper with a long string of characters on it, or a software wallet such as a popular one called Metamask, or a physical device that looks like a USB drive called a hardware wallet (such as a Ledger or Trezor), or you can hold your crypto on an centralized exchange such as Coinbase, Kraken, Binance, or others.
There are pros and cons of each, and they all have vulnerabilities, so it’s important to take time to learn how to protect your funds before deciding which wallet or exchange you want to use.
The most well-known cryptocurrency is Bitcoin (BTC), with Ethereum a close second, but there are many others that were designed to do vastly different things.
Bitcoin was created in 2009 by Satoshi Nakamoto, (a pseudonym—perhaps an individual or group), as a peer-to-peer electronic cash system. But the origins of the technology behind cryptocurrencies date all the way back to 1982 when David Chaum introduced the idea of “e-Cash,” and described a new form of cryptography in his paper, “Blind Signatures for Untraceable Payments.”
The second largest cryptocurrency by market cap, Ethereum (ETH), was designed to create decentralized finance, or DeFi systems, as well as numerous other projects.
Cryptocurrency is so named because it’s secured by cryptography. Cryptography is widely used across many industries these days, not just cryptocurrency. But in cryptocurrency, cryptography is used to generate new currency, transfer ownership, and verify all transactions.
Historically, cryptography was synonymous with encryption, which is the process of encoding information so it cannot be read by third parties without a decryption key. Since the invention of computers, cryptography has become increasingly more complex.
Today’s cryptography includes the study of concepts such as encryption and decryption, as well as many other methods and technologies. Cryptography uses various forms of encryption, but is no longer considered synonymous with encryption.
Why are Cryptocurrencies so Different than Regular Currencies?
The most unique aspect of cryptocurrency is that it can be decentralized, with no need for a central authority or central bank. While some cryptocurrencies can still have centralized control to varying degrees, the concept of decentralization is key to the innovative design of the underlying technology for cryptocurrencies, called blockchain technology.
Cryptocurrency and blockchain technology is not just about currency either – in fact that might be one of it’s least exciting uses as we’ll discuss below.
How Does Blockchain Technology Work?
The underlying technology that cryptocurrencies are built on is called the blockchain. The blockchain is just a distributed ledger system that consists of nodes, and is not synonymous with cryptocurrency.
Blockchain technology provides a system of maintaining a distributed and secure database such that no one entity has the ability to change the records. New records are only added when the majority of nodes on the network have verified them.
A blockchain is basically just a constantly growing list of records, and these records are called “blocks.” Each new block on a typical blockchain not only contains the record it’s recording or transaction data, but also a reference to the previous block and a timestamp.
In a distributed blockchain network, there are nodes, or connections within the network, such as individual computers around the world. If there’s a disagreement in the order of any transactions that need to be added to the record, the entire network must reach global consensus of the order of these transactions.
What Does it Mean to Be Decentralized?
Blockchains are networks, but they’re different than the networks we are used to such as home sharing or ride sharing networks. Because blockchains are decentralized, they exist more as a cooperative and do not require a centralized company or server to function.
A blockchain is a global, decentralized, digital ledger that new transactions are constantly added to in chronological order in the form of “completed blocks.” All nodes, or computers connected to the network in a public blockchain, automatically receive a copy of the entire blockchain with all past blocks.
All participants in the transactions of that blockchain can keep track of all transactions without a need for any centralized record keeping. Any transaction added to the blockchain forms an indelible, permanent record.
Permanent Record Keeping
Any type of document could be inserted into a blockchain, which would create an immutable record of that document that the entire blockchain community would be able to verify, rather than relying on a central server or centralized agency to keep and verify such documents. These documents could be anything from deeds, to votes, to medical records, to educational achievements, and more. These digital ledgers can be used to record any type of data or anything of value, not just data and transactions of a financial nature.
Is a “Blockchain Revolution” on the Horizon?
Blockchain is definitely one of the most significant technological advances in recent history, and we are just starting to explore how it will change our lives in the future. Why? One main reason is because it allows for transactions to occur between parties without having to trust each other. It also eliminates the vulnerabilities that are inherent in any central server by making it less hackable.
How Will Cryptocurrency and Blockchain Technology Change Our Future?
Only time will tell! But below are some ways it’s already being used and some speculation on other ways it might be in the near future. Blockchain technology is being talked about as the technology that will have the greatest impact on our lives over the next few decades.
Problems Blockchain Technology is Attempting to Solve
One of the most immediately useful aspects of the blockchain is banking and money transfer. Currently we store money with a bank account or investment account and send money using an intermediary such as Western Union or PayPal. Blockchain can be useful to consumers by eliminating third party fees. Depending on which cryptocurrency you are using, it can have such small fees as to be negligible—just a small fraction of a penny.
Since these cryptocurrencies have much lower fees than credit cards, no foreign transaction fees, and the ability to be used for instant, micro-transactions, they solve a lot of problems in a global economy setting. They can also help provide a way to store currency for people who do not have access to traditional banking.
Not all cryptocurrencies are made for currency transactions though, so it’s important to learn how they work and how to use and move them around with the least fees possible.
Just like in the example above with PayPal, banks, and others coming between people and their money, middlemen usually cause a larger inequality gap between rich and poor in societies because they aggregate large amounts of funds in centralized systems that put this money in the hands of a small amount of companies and individuals. With cryptocurrency, a lot of bureaucracy is removed along with the extra fees.
What Are Some Non-Currency Applications of Blockchain Technology?
Managing Our Own Medical Records
This technology can help improve cybersecurity and allow users to own and manage their own data. The elimination of intermediaries controlling and storing data could be of particularly significant use in regard to managing confidential data such as medical records, allowing individuals to control exactly how and when their personal data is shared. This also would reduce costs for medical providers if they do not need to manage and protect sensitive patient data.
Authenticate Supply Chains and Eliminate Counterfeit Products
Blockchains can also help keep track of the design, development, production, and distribution process of medical devices and their components. This could apply to any other innovations and new products or technologies as well, potentially changing the way patents are obtained and defended in court. Transparency and tracking at this level in the supply chain will be useful for companies to improve food and product safety, and therefore consumer trust and loyalty.
Devices Such as Self-Driving Cars and Artificial Hearts
The increased cybersecurity and lack of one point of central vulnerability would also greatly benefit the fields of self-driving vehicles and medical devices that absolutely rely on security. Imagine how important this would be with something like a remote surgical procedure performed by a surgeon in another state.
Blockchain in Real Estate
Blockchain technology is an industry disruptor, much like Uber was to taxis and AirBNB was to the hotel industry. Like it or not, many industries will have to adapt, and the real estate industry is no exception.
If blockchain technology is used for a property rights database, there would be no disputes and no ambiguity about ownership. Records could not be altered, and everyone could see the history on the blockchain of exactly when the record was written. There may no longer be a need for title insurance with this type of immutable title recording system.
Blockchain technology may also allow for immediate settlements, far fewer third party fees, and decentralized peer-to-peer lending for mortgages. For investors, tokenized real estate allows the purchase of fractional shares of real estate instead of having to purchase an entire property.
An Anti-Corruption Tool
Blockchain technology could assist with tracking campaign contributions and monitoring where taxpayer money is being spent. The same traceability would assist with diplomas, election integrity, voter registration information, election costs, and accessibility through secure and verifiable remote voting.
Music, Art, and Antiques
The music industry will be able to take advantage of blockchain technology to help prevent illegal song sharing that greatly lowers profitability for musicians. Also, without the need for financial intermediaries, record labels, or other middlemen that keep the majority of the money, musicians can sell their music directly to consumers.
With art, antiques, and collectibles, blockchain will remove any question as to provenance or authenticity.
Video Production and Gaming
With decentralized computing power, rendering animation could be cheap and powerful, so freelancers and small companies would be able to compete with big production houses.
Eliminate Fake News and Deep Fake Videos
With artificial intelligence getting more and more capable of producing believable fake videos and information, the problem will only get worse if it’s not addressed soon. Luckily, blockchain technology can offer a solution by providing audit trails and immutable, digital records of all content generated within the media ecosystem.
Does Cryptocurrency Hurt the Environment?
Not all blockchains are created equal. As you might have heard, Bitcoin uses vast amounts of energy that rivals the energy usage of entire nations. While that’s not a sustainable or acceptable situation, there are possible solutions, including a big push for wind, solar, and other forms of energy usage for Bitcoin mining.
However, because of this issue, other cryptocurrencies are starting to look more attractive to investors and companies, since there are many that are much more eco-friendly in their transaction and verification processes.
All this being said, the environmental impact of cryptocurrency may still be less than that associated with fiat currencies and related industries such as cash production, data centers, gold mining, central bank data storage, and others. The physical production of fiat currency worldwide also consumes huge amounts of power that no one brings up when they are arguing about the environmental impact of cryptocurrencies. Eco-friendly cryptocurrencies may actually offer some solutions to fix the energy consuming flaws inherent in all other currencies.
What Is Web 3.0?
Another positive outcome of blockchain technology is the move from Web 2.0 to Web 3.0. Currently, with Web 2.0, our purchasing data is being tracked and stored, as is our web browsing, social media activity, and location data. Everything we do online, (and in many cases also offline), is being tracked through our devices and credit cards, then stored, sold, and used in ways that can have negative affects.
It may seem convenient that you receive product suggestions that interest you, so this may not sound like a big deal, until you consider it affects your loan rates, ability to get medical insurance, is an enormous invasion of privacy, and can have other significant detrimental effects on your life and finances.
Many people have been concerned in recent years about governments snooping on us, but in democratic countries, more of your personal data is likely being trafficked by companies you don’t think twice about.
Data brokers gather and package our sensitive individual data and sell it as a commodity to advertisers, research firms, trade associations, retailers, internet companies, the government, and more, usually without our knowledge or full understanding of how it could affect us. The data collected can predict many things about a person, such as if you’re likely to get a divorce or an illness, and if so, you may find you’re not able to get credit or insurance, for example.
A Better System?
Cryptocurrencies don’t require that you input personal data—not even your name—unless you want to use a centralized exchange such as Coinbase. Some data could still be collected by third party interlopers, but this data would provide much less information to data brokers about you.
Blockchain technology can provide us with “self-sovereign wallets” that make us the solitary owner of our own data and the gatekeepers of it. This can give us the power to grant limited access to our data, and profit from granting access to it, just like data brokers profit from our data now. Decentralized GPS, decentralized wifi, and other up and coming Web 3.0 developments will also help us eliminate this data privacy issue.
Future Outlook and the Network Effect
In economics, the network effect refers to any situation where the value or utility derived from a product, service, or platform is correlated to the number of users, such that a community’s value increases as the number of users participating in it increases.
We are still in the very early adoption phase of blockchain technology and cryptocurrency usage. Much like in the 90s there was a lot of money to be made (and lost!) by being an early adopter of web technology, the same may apply to blockchain technology today. One difference, however, is that today we’re already globally connected, so the rate of adoption of new technologies is even faster than it was for the internet, or before that for computers, phones, and even the printing press.
Will it Last?
Venture capital is pouring into this technology, and the applications are only limited by our imagination. But will it prove to be the revolutionary technology many think it will, or will it fizzle out and be replaced?
No doubt some companies are using blockchain for applications that don’t need it or shouldn’t use it, simply to attract investors with the “blockchain” buzzword. So it’s likely when the hype dies down that many of these types of businesses will shift back to more traditional methods.
The vast majority of the current cryptocurrencies may also fizzle out, since most have little utility or value. But blockchain technology does have many important applications—some we are already learning about, and others no one has even thought about yet.
It’s impossible to predict all of the ways that blockchain technology might impact society, but like with any new technology, some uses may be beneficial and some detrimental. Hopefully we will see many problems solved and positive developments in this innovative new field.