I’ve wanted to share this post about blockchain and cryptocurrency for some time.
I know, you may be thinking, “why is he talking about blockchain and cryptocurrency?”
To be honest, I’m a practical believer in the technology, but not a speculator.
I started this post in February of 2018 but have been hesitant to share it because of how volatile the world of cryptocurrency has been.
I want to share with you my experience with blockchain and cryptocurrency and give you a guide on what each is and how it works.
This is related to personal finance in so many ways because it’s already shaping the way we buy things and manage our finances online.
I get asked about this stuff all the time and think it only makes sense to share my viewpoint.
How I Got Started With Blockchain and Cryptocurrency
My first encounter was in 2016. I logged on to my bank at USAA and they had a banner asking if I would like to connect my Coinbase account. I thought, “what is Coinbase?” It sounded interesting, so I created a Coinbase account and connected it to my bank.
But I never actually purchased any cryptocurrency. I had no idea what I was doing. A year later, in the summer of 2017, we hired an intern at my work. He told me he was super into crypto and I thought he was crazy.
I really had no interest in purchasing cryptocurrency because they just didn’t make sense to me.
But finally, in August 2017, my friend convinced me to purchase some. It’s been a rollercoaster ride since then but I have never overextended myself and put my finances in jeopardy. I believe in the practical utility long term and I’m not just trying to “get rich quick.”
I want to make this clear. I’m not recommending anyone buy cryptocurrency. It’s the wild wild west and very unstable and no one knows what’s going to happen.
My purpose in writing this is to highlight the benefits of blockchain and cryptocurrency and explain why I think it’s not going away. Whether you’re into it or not, there’s a change taking place with the internet that could be more powerful than the internet itself.
It will become an integral part of how we transact in the near future.
I don’t like to think too far into the future. But the fact is things are changing so fast that it isn’t something far away anymore. I think it is going to change more than we realize.
Not many people like to talk about this because it’s hard to wrap your head around it. All they hear is how risky cryptocurrency and bitcoin are and aren’t even sure how it works. My goal is to help simplify what this new technology is.
I guess you could say I’m making my stance.
What is Blockchain?
Blockchain is simply an online accounting ledger. Simply put, it’s a way to track things online easier and more efficiently.
Blockchain is the foundation on which all cryptocurrencies are built. You can have Blockchain without Cryptocurrency but you cannot have Cryptocurrency without Blockchain.
Cryptocurrencies aren’t the only thing that will benefit from this new technology. Because of a new network or Web 3.0 as some are calling it, the end consumer will also benefit immensely.
One of my new favorite resources for learning about Blockchain is a website called Blockgeeks.com. They produce great content and I’m going to use the information they’ve put together for educational purposes.
Think of blockchain as a way for all devices to access a decentralized public accounting system that’s built on a new network and cannot be changed.
The New Network
Having a decentralized network cuts out the middleman on a lot of transactions saving consumers time and money.
Have you ever needed to have something notarized by a notary public? Why is that?
A notary’s job is to verify the identity of the person signing a legal document.
I became a Notary Public last year and occasionally I will notarize documents for people in my city. The origins of Notaries can be traced to ancient Egypt — a time when making records official transactions became important to humanity and dating back to 2750-2250 B.C. They are supposed to help oversee the official transaction by checking the ID of a signer and making sure the person is who they say they are.
Blockchain technology would get rid of the need for a notary because of smart contracts. What is a smart contract?
With smart contracts, you basically cut out the job of a notary because the blockchain will be able to verify who a person is with cryptography and execute a contract.
Blockchain is a wisdom of the crowd technology. We will be able to do so more online with a higher level of security. Here are 17 examples of what development of blockchain will bring.
1. Peer-to-Peer Transactions
Blockchain would enable business applications to arise making it easier for individuals to transact.
For example, as the sharing economy has grown over the past few years you still need a third party such as Airbnb or Venmo to be an intermediary.
The blockchain would enable peer-to-peer payments and make it possible to directly transact without a third party.
Blockchain would enable more crowdfunding opportunities. Kickstarter has grown in popularity as the platform to get funding to launch a business.
With Blockchain, you can create crowdsourced venture capital funds. So if you have an idea, instead of going to individual investors for start-up capital, you could easily get funding from a group of people.
One of the biggest benefits of blockchain that most people don’t think about is how it will change governance.
Throughout history, there’s never been a way to know with certainty that your vote has been cast. When you vote in an election, you’re trusting that your vote gets counted.
With blockchain, your privacy is protected, and you could vote online without physically sending a ballet that gets counted by humans. The blockchain can guarantee that your vote counted. No more miscounting votes.
4. Managing Inventory
For all the business owners out there that manage a business’s inventory, blockchain would provide an easy and accurate way to track it.
It could timestamp dates and locations that correspond with product numbers that cannot be changed. No more inventory audits every year because you know what you have in inventory is what you have.
5. File Storage
A huge benefit of the blockchain is safely storing documents. When you decentralize the file storage on the internet, the distributed data prevents hacked and lost files.
Internet security is a huge issue for individuals and businesses. Blockchain takes security to a new level. Because of Symmetric-Key Cryptography, you can send files securely without being hacked
6. Intellectual Property
The blockchain can protect intellectual property. A lot of money is spent trying to protect intellectual property. There’s an entire industry built on trying to protect property that gets distributed on the internet.
Smart contracts can protect copyright and automate the sale of creative work online. This eliminates the risk of copying and redistribution.
For example, one big problem is photographers who own the right to a picture online and it gets copied and redistributed.
Do you remember the camera company Kodak? They’re still around and they’ve shifted their focus to protecting photographs online by getting them on the blockchain.
“Wenn Digital has developed an image protection, monetization, and distribution platform secured via blockchain called KODAKOne, which is designed to protect the copyright of images or photographs registered on the platform.
7. The Internet of Things
Blockchain would enable the internet of things. People have been talking about the internet of things for years.
“The Internet of things is the extension of Internet connectivity into physical devices and everyday objects. Embedded with electronics, Internet connectivity, and other forms of hardware, these devices can communicate and interact with others over the Internet, and they can be remotely monitored and controlled.”
Smart contracts can automate remote systems through a combination of software, sensors, and network facilities. To learn more about the internet of things, watch this.
Blockchains can allow renewable energy within specific local areas like neighborhoods.
“A microgrid is a localized group of electricity sources and loads that normally operates connected to and synchronous with the traditional wide area synchronous grid, but can also disconnect to “island mode” — and function autonomously as physical or economic conditions dictate.”
9. Identity Management
The blockchain will offer enhanced methods to prove who you are.
It will allow you to have your own secure, advanced and digitized identity which will become more and more important as online services evolve.
Just like no one on earth has your exact same signature or thumbprint, you would have your own digital signature that would enable you to securely sign online.
10. Anti-money Laundering and Know Your Customer laws
The blockchain will improve anti-money laundering. “Anti-money laundering refers to a set of laws, regulations, and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income.”
Also, in the financial services industry, the Securities and Exchange Commission (SEC) requires financial companies to “Know Your Customer.” Cross-institutional client verification and stronger analysis is possible with blockchain.
It can be a major pain completing a KYC every 36 months and this would eliminate the need to do so.
11. Private Data Management
Users will be able to control their private data and know exactly where and how it is used.
There have been talks about individual users being able to sell their own information and profit from it instead of the big companies if that’s what they decide to do.
Selling online user information is a multi-billion dollar industry and you should have control over how it gets used.
12. Land Title Registry
This will become one of the biggest added benefits of the blockchain. Publically accessible ledgers can make record keeping for land and property more efficient.
In America, there are constant disputes about property ownership. Once the information is added to the blockchain, it’s recorded and can’t be misinterpreted.
In less developed countries, they have no official record keeping system for property ownership. For example, one of the major conflicts and reasons for war in Africa is over who owns title to land.
Having the information on the blockchain would bring certainty and hopefully alleviate war. Across the globe, blockchain land registry programs are in the works.
13. Waking up Sleepy Assets
Along with tracking property rights, when there’s a clear idea of who owns it, that person can leverage their property rights by purchasing more assets or starting a business.
This has been a major economic impact on the growth of America. Property owners have been able to take equity from their home and use it to start a business or buy more real estate.
Imagine what could happen throughout the world if other property owners in other countries could leverage their property rights.
14. Sharing Health Information
When you go to the doctors or the hospital, do you wonder why you have to fill out a form every time?
It’s because health organizations take your health history very seriously and can’t share it across other businesses. It has to be kept in house.
With information securely stored on the blockchain, health companies would be able to share health information while keeping it safe.
You’ve got to watch this hilarious video about if Airlines worked like Healthcare.
15. Stock Trading
When buying and selling stocks you have to have an intermediary or custodian execute the transaction.
When peer-to-peer trade confirmations become instant, auditors and custodians get removed from the process. This will save investors money when purchasing stocks and will execute immediately.
16. Banking the Unbanked
In the U.S. and throughout the world, customers do not qualify for a bank account because they do not meet certain criteria with the bank.
These people are not able to complete transactions so many of us take for granted. Having a new and updated monetary system would allow people to have a bank and transact in ways they otherwise wouldn’t have been able to.
17. Alleviating World Poverty
From leveraging property rights, having access to a bank account, and cutting out middlemen, people in hard economic situations will be able to do more.
This has already been tested in multiple countries where the citizens who already have smartphones download an app and are able to use electronic payments.
The system is built on trust just like the dollar is, but as it gains mass adoption, it really does have the ability to alleviate poverty in countries by getting people to spend money.
“The concept of poverty goes far beyond the concept of a lack of resources… Blockchain could, in fact, offer those areas of the globe classified as Third World access to cheaper banking services and financial inclusion.”
So far we’ve talked about the benefits of the blockchain.
The benefits of Blockchain are something that isn’t discussed enough. People hear Bitcoin and they think, “oh, that’s not for me. That’s too risky.”
But it’s so much more than just a risky asset. This technology has the potential to change the way the world transacts online and how we use financial services.
But now I want to discuss some of the benefits of cryptocurrency and what it is.
What is Cryptocurrency?
Cryptocurrency is “a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.”
Cryptocurrencies make it easier to conduct any transactions, for transfers are simplified through the use of public and private keys for security and privacy purposes. These transfers can be done with minimal processing fees, allowing users to avoid the steep fees charged by traditional financial institutions.
Most people view cryptocurrency only as speculation and omit the utility of it.
I don’t want to discuss the price of bitcoin and tell you whether or not it’s a good time to buy or if you should consider purchasing cryptocurrency. I’m only discussing the utility of cryptocurrency and what it can do.
Many online companies have begun accepting cryptocurrency as an alternative form of payment.
You can own a digital wallet with real digital money. I know the picture of this post is a little misleading but cryptocurrencies are not actually physical coins.
It’s a combination of complex code that makes up one coin. And because it’s recorded on the blockchain it can’t be changed.
When you transact online such as buying a product or sending money to a friend, it’s irreversible. Once the transaction has taken place it will be on the public ledger forever and cannot be changed.
Once the money is sent, it’s sent. Of course, your friend could send money back or the company can refund you but if you were to send money to a scammer on accident, there’s no way to recover it.
This is also what makes crypto so secure. No centralized organization or government can decide what you can’t spend money on.
Honestly, one of the reasons cryptocurrency was created was to transact in the black market of selling drugs. In the early days, people could buy and sell drugs online with no way for it to be traced.
When you transact online there is no way for anyone to track your real-world identity with online activities. In that way, it’s completely private.
What is Bitcoin?
For example, Bitcoin is sent to 30-character addresses that consist of various addresses and numbers making it very difficult to connect your Bitcoin address to your real-world identity.
When I was in high school, I would buy clothing from China, and sell it. This honestly wasn’t that long ago.
Before I could have the products shipped to me, the company in China would need to receive the physical cash from a money order. I would go into Home Depot, locate the Western Union table, put my cash in an envelope, pay high fees, and hope that it made it there safely.
It’s so common for people to send money to and from another country but the value of what you send could so easily get eaten up because of high fees, the risk of it being stolen, and the time it takes for it to arrive.
Having a cryptocurrency like Bitcoin would allow you to purchase goods from any country. Bitcoin is the currency that gets the most attention because it’s the most well known. But in fact, there are thousands of other cryptocurrencies. Some of the other most popular ones are Ethereum, Litecoin, and Ripple.
Each has its own function and utility.
One of the biggest benefits of cryptocurrency is the transaction time.
Transactions are executed instantly.
It doesn’t matter if you’re sending Bitcoin next door or across the world, the transaction time is the same.
Cryptocurrency has already changed that and will continue to do so by bringing the transaction time way down.
Online security has become incredibly important because so much of what we do now is online. It’s been too easy in the past for hackers to do whatever they want.
Cryptocurrencies are locked by public-key Cryptography. Only the owner of the key can send them.
It’s not impossible to crack the code with very complicated mathematics and this is why huge amounts of cryptocurrency have been lost and stolen. But with advancements, it will become more secure.
Apparently, there are more private and public key pairs in the cryptocurrency network than there are stars in the galaxy. It would take an incredible amount of time to crack any specific code.
You decide how you want to use cryptocurrency. The network cannot discriminate. It’s just like using physical money, in all reality, you can do with it what you want.
Is all you need is a digital wallet. This will allow you to send and receive cryptocurrency and spend it however you would like.
Using a digital wallet to pay for things will make it that much easier to spend money.
One of the things that worry me is how abstract the idea of money will become. When money because some weird made up magic that exists somewhere on the internet, it will make it hard to be disciplined with your money.
It’s not like spending cash where you physically give something up.
How can you ride the wave?
People ask me about cryptocurrency a lot. If you believe in the technology but you don’t want to expose yourself to too much risk, how can you ride the wave?
You’ve heard of people making millions of dollars with Bitcoin and bought a Ferrari. Many people want to grab a piece of the growth. These stories are super rare and you will never hear about the majority of people who lost A LOT of money.
I’m not going to tell you that you should or shouldn’t purchase cryptocurrency. I want to be transparent and say that I own a small percentage of my portfolio in crypto. I’m not trying to time the market by buying and selling. I view it as a long-term strategy and I’m diversified across many currencies.
One way to ride the wave aside from buying cryptocurrency is to support the companies that are investing millions in research and development in the blockchain.
While living in Salt Lake City, I use to commute home from the University of Utah using the train system. It took about an hour to get home and every day I watched them build this circle building in the middle of the valley.
It was a strangely shaped building and I didn’t know what it was for. When the building was nearly complete, I looked it up and realized it would become the new headquarters of a company I was somewhat familiar with called Overstock.
At the time I was into buying individual stocks and decided to buy 10 shares of Overstock at $16.00 a share. The only reason I purchased shares was that I commuted past the building every day.
I had no idea what the next year would bring for the company. It turns out the company was investing heavily in blockchain and cryptocurrency and was working starting a digital currency exchange called tZero. I watched the price of the stock go up with bitcoin to nearly $90 a share.
Even though the price increased dramatically, it dropped to under $10 in 2019.
Companies Supporting Blockchain and Cryptocurrency
The reason I brought this story up is that you can participate in the growth of new technology without jeopardizing your money with cryptocurrency by supporting the companies investing in it.
To name a few companies that are investing in new technology are Overstock, Facebook, IBM, American Express, Alphabet, Goldman Sachs, JP Morgan, Square and Visa to name a few.
Most of these companies are large-cap companies that make up a big percentage of the stock market.
IF new technology is developed, the market will do better. But some people want to invest in an index fund of global equities focusing on blockchain and cryptocurrency technology.
I don’t want to mention the specific ticker symbols for fear it will be taken as investment advice. But they do exist and provide a great alternative if you don’t want to purchase cryptocurrency.
Blockchain and cryptocurrency aren’t going away. I’ve given you multiple reasons why practically speaking it makes sense to have them.
Sadly, too many people speculate and follow the herd mentality making it hard to trust the technology.
I haven’t recommended you do anything, my purpose has been to point out the pros of the technology. There are obviously many cons to investing your money into this stuff.
So be careful.
Don’t do anything that could jeopardize your financial future.
Until cryptocurrency becomes more stable, I don’t think we will see major adoption. Facebook is actually spending millions of dollars developing their own cryptocurrency that’s pegged to the dollar.
It’s called Stablecoin and it’s supposed to allow people to spend crypto that fluctuates as much as the US dollar, making more stable.
Will Blockchain and Cryptocurrency Technology change the financial services industry?
I believe that blockchain and cryptocurrency technology will disrupt the financial services industry.
We’re still very early and will continue to see major developments and adoptions.
Just like the internet was in the 1990’s we’re seeing a lot of Fintech companies developing technologies built on the blockchain.
The companies that survive after the market takes a downturn are those that will have the biggest opportunities.
I hope you’ve enjoyed this practical guide on blockchain and cryptocurrency.