Daily Management Review

Bitcoin Teaches Mankind How to Trust


The virtual currency Bitcoin has bad reputation – people do not like it for its sudden leaps and depreciations (October - November 2013, Bitcoin rose from $ 118 to $ 980, and fell by more than 50% over the next 4 months). Besides, the currency is quite popular on the black market.

Meanwhile, the cryptocurrency’s course has been behaving relatively stable during the last year, hovering around the $ 250 mark, and European regulators have replaced suspicion with enthusiasm and eventually equated Bitcoin to normal currency. Yet, Bitcoin has a potential much greater than becoming a competitor of traditional money: the virtual currency’s blockchain technology can transform the way the economy and commerce in general, works. Blockchain is versatile machine for building confidence in the economy.
The technology, on the basis of which the Bitcoin works, is an amazing brainchild. In fact, it is a big ledger, which any user can check and no one can sole control it. This system makes possible avoiding double costs, allows monitoring transactions in real time, that is, makes it possible to exist without a central bank currency.

Blockchain allows people, who are not familiar and do not know anything about each other, trust in the community and, therefore, can be used not only to support Bitcoin, but also wherever needed a reliable system. Dozens of startups will be glad to develop and capitalize on the idea, writes Economist. On this basis, one can create public databases cheap and secure from malicious interference - from land registry to catalog objects of art.

Finance companies will be able to use blockchains to keep information about who owns what, and banks - to carry out difficult transactions without need to endlessly negotiate details with other parties. According to the Bank of Santander, such a system could save up to $ 20 billion to financial institutions by 2022. It's not just words: more than two dozen of the largest banks supported a blockchain-startup R3 CEV, having agreed to work together to develop common standards. NASDAQ plans to use similar technology for recording on trade in securities of private companies.

These new systems may not work exactly as Bitcoin’s blockchain - they can find an alternative to the original mechanism of "mining" or introduce new rules (for example, to limit transactions). Eventually, with the development of such technologies, blockchains will be cleared of its current "shadow" image and become a model, which, on the contrary, can be trusted. Heavy players, who are entitled to guarantee transactions - banks, government regulators, specialized institutions – are not going to like the blockchain expansion. However, in recent years, the credibility of such regulators already decreased. The advent of a system based on public trust is not a bad option. And what is more important, it has the potential to turn the way people and companies communicate in many different parts of the economy.

source: economist.com