Blockchain, the Silent Revolution
In 2016, I founded a project called myMoneez. It was a very ambitious idea: create a digital coin that would be fully backed by physical gold bars and that would be processed on Ethereum blockchain network. The objective was to lay the ground for a new monetary system, based on tangible assets and totally independent from current banking institutions.
Maybe I did not meet the right persons and made some mistakes. However, at that time, when people thought of blockchain and digital currencies, they mostly thought of cryptocurrencies like bitcoin, and few of them paid attention to alternative projects. Today, when I see the public debates around Facebook’s Libra, and the success of startups like Paxos, I still believe that the original idea of myMoneez was the right one.
In my opinion, the probability that distributed-ledger technologies will become the norm in monetary activities in the future is very high. To understand that, you need to bear in mind the essential role played by money in human history. Indeed, according to Yuval Noah Harari, money, empire and religion, have been the three main drivers of mankind unification.
Harari explains that money has catalyzed interactions between homo sapiens all around the world, laying the ground for economic activity on a very large geographical scale and the emergence of large political entities. The reason is that it is a standard that facilitates trade and brings confidence in daily transactions. Confidence exists because people have faith in the underlying value of on currency unit. And there are three main psychological pillars behind that: confidence in the government issuing the currency, confidence in its nominal value, and confidence in the technology supporting it.
Since 2009, bitcoin has always been a libertarian project willing to address those three structural pillars. But there is still no guarantee that a sufficient majority of people will trust this alternative system in the future. However, from a pure technological perspective, what Satoshi Nakamoto created is likely to revolutionize the financial industry. The reason is that blockchain is now the safest technology to process transactions and register people’s holdings.
To understand the power of blockchain, let’s focus on one of its main properties: Byzantine fault tolerance.
Imagine a city surrounded by hundreds of generals willing to agree on the best strategy to attack the city. They can only communicate using human messengers. But there might be traitors among them, so they need to find a safe way to reach a consensus despite the presence of traitors. There is a protocol to solve this problem: blockchain.
Instead of generals, imagine now millions of individuals willing to reach a consensus on their financial holdings. Then you understand how blockchain can lead to a safer and fully decentralized monetary system. Of course, we need to ensure that half of the workers are not hacking the network, but such a situation becomes very unlikely on a large scale.
One century ago, banks were obviously the safest place to deposit your financial holdings and make sure that they would be protected. In 2020, while money has been mainly dematerialized and digitalized, people still need to open a bank account. Because of million different institutions in the world, this historical monopoly has led to an inefficient system, with painful and costly procedures whenever Alice wants to send one currency unit to Bob.
Beyond those inefficiencies, the main problem is that current banking system does not guarantee data integrity. If your bank’s servers are down tomorrow, then how will you prove that you have $1,000 on your current account? Thanks to Byzantine fault tolerance, such a situation would not be possible with a blockchain-based framework.
Ethereum, Ripple, Libra: what degree of standardization tomorrow?
For years, I have had the conviction that Ethereum would become the main blockchain platform in the world. Indeed, Ethereum is very different from Bitcoin protocol since the mission of its founders is to build something equivalent to “the web”. Like the internet, Ethereum is supposed to be a public and open blockchain protocol where everyone can deploy its own applications (i.e. smart contracts) that can be called using APIs. In theory, Ethereum is the perfect back-end solution for every stablecoin project.
However, money is something that government are willing to closely control and monitor. And as already mentioned before, confidence in the issuing authority has always been key. So, the fact that China PBoC is currently leading the first official stablecoin project in the world should not come as a surprise. And because monetary policy is also considered to be a regalian function in Western countries, there is no guarantee that Facebook’s Libra will be picked by authorities to counter the coming yuan-pegged coin.
Nevertheless, if every central bank adopts its own protocol, then there might be no technical standard, leading to new inefficiencies. Defining a standard for blockchain applications has become the most critical challenge, because of big differences in networks, in smart contracts and in device compatibility. What would Google look like without a common standard for the internet protocol?
Even if governments are trying to control the way stablecoins are deployed, I still believe that innovation will mostly come from individuals, developing new contracts that will disrupt existing models. And we have just seen that this technology can dramatically change the way we process transactions and protect people’s holdings.
Beyond the banking industry, there are many activities that could be revolutionized in the future. This is why blockchain is the next big revolution. Internet has changed the way people interact with each other from a communication perspective. Blockchain might change the way they interact from a monetary perspective.