We Are Remaking The Entire Financial System
Why am I so optimistic about cryptocurrency?
It is really simple. We are embarking upon another major transition, one that strikes at the core of society. Periodically, we encounter these time frames where history notes the new path society finds itself upon.
Many feel that this is nothing. They are wrong. When one goes down the rabbit hole of what is truly taking place, it is easy to see how we are about to experience a major paradigm shift. It is all coming together.
The challenge is that few take the time to step back and look at what is truly occurring. Since most fail to understand the present system, it is impossible to see how it is being disrupted. Yet, make no mistake, this is happening on many different levels.
It all starts with the core: money.
4th Phase Of Money
Lost in all the "when moon" is the fact that money is entering its 4th phase. Throughout history there were periods when we saw a few key events that radically altered the plight of humanity.
With money, we can break it down into 3 phases.
- Single-entry invented by the ancient Mesopotamians.
- Double-entry created in the 15th century by Luca Pacioli
- Shared ledger double-entry - wholesale banking system
And now we are embarking upon the 4th phase: distributed ledger triple-entry.
If it seems strange to talk about money in this form, then we are touching upon some misguided notions about money. It is crucial to understand that money is a system, it always was. The reason for this is the concept of settlement. That is why it resembles accounting more than what people typical associate with money.
Economic transactions require settlement. In other words, the transaction has to be fully completed. Determining who owes what to whom is vital. Here is where we see the different phases throughout history.
The potential of cryptocurrency lies in the fact that blockchain is accelerating things while providing a more robust system.
Open Payment Systems
We saw a radical explosion in economic growth since the end of World War II. Here is where we ushered in the age of shared ledger technology. This massively altered the efficiency of the global monetary system.
One thing the Fed did get right is the fact that is created a powerful payment system. Of course, the drawback is that intermediaries are required. These entities are large, centralized institutions that participate in most payments. It is what blockchain seeks to replace.
To show the difference, in a 60 years period of time, we see these numbers through Fedwire:
- 1947: $17.9 billion in reserves; $316 billion in payments
- 2007: $9 billion in reserves; $610 trillion in payments
The reserves were halved but the payments went up 50 times. Here we see the improvement in our global communications system, another important component to money.
What we are embarking upon now with Decentralized Finance (DeFi) is establishing open payment systems. Instead of a small handful of centralized entities controlling the majority of the global transactions, these are now being done on decentralized blockchains. Therefore, block validators are protecting against the double-spend problem that was ever present with money.
As stated, economic activity is dependent upon settlements. Here is where a major step forward.
Monetary Settlement
Without going into too much detail, we will focus upon a couple of layers of the monetary hierarchy.
The first is cash. This has instant settlement and takes place between individuals or businesses. Make a payment in cash, no further transactions are required.
If we move to the second level, we find the commercial banking system. This is where, when one pays with a debit card, a settlement has to be made between the accounts. The problem is that even when this takes place, it is not complete. The banks have to settle their reserve requirements, necessitating another transaction.
It is why settlement can take days. They also require third parties, i.e. banks.
With cryptocurrency, things change completely. To start, we see how the need for banks in this process is completely eliminated. Since we are dealing with blockchain, that serves as the "accounting" system. Hence, if we think about it, banks are just glorified bookkeepers.
What is really powerful is how settlements change.
With Hive, as an example, we have a settlement time of about 45 seconds. While money moves between accounts in 3 seconds, it takes 15 times that before the block cannot be reversed. However, there is an idea to make money on Hive (HBD and HIVE) just like cash in regards to settlement.
A recent scenario was outline by @blocktrades which can to this conclusion:
In a normally well-connected Hive p2p network, this should result in most blocks becoming irreversible on a node within a second or less after they are produced.
This means in roughly the same time it takes someone to hand cash over to a person behind a counter, Hive would have a transaction settled and the block irreversible.
As far as I’m aware, the One-block Irreversibility protocol will put Hive at the forefront in terms of transaction confirmation time.
It would also make Hive one of the fastest monetary settlement systems on the planet. Putting it on par with cash is not imaginable with third parties involved.
Do Not Overlook The Plumbing
In future articles we will discuss DeFi and how that is altering the financial system. However, we need to not skip looking at the plumbing that is responsible for our monetary system.
It is here where the banks entrenched themselves. This is also where they are most vulnerable.
We know this is taking place since we already have JPMorgan is using blockchain for collateral settlement. The banks are aware of the power of this technology and how it fundamentally changes everything with our monetary system.
They are also aware that, under this scenario, they are also not required.
Here is how we are remaking the entire financial system.
It is also why I am so optimistic about the future of cryptocurrency. We are entering the 4th generation of money.
What are your thoughts? Let us know in the comment section below.
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Explain this part to me again. Does this mean the block cannot be reversed no matter what?. How does that help us?
I thought we could send money over to the next person and get it back if the other party wants to return it.
I am getting more confused than ever trying to come up with the right questions for you.
Blocks are created as we execute transactions, blocks are created for storing datas,all that we do on hive blockchain by hive witnesses that we vote.
Ok. If I understand your response correctly, it aligns with his words like this 👇👇
Once a transaction is done, it can't be reversed, so there is no way anyone can manipulate it at all.
Is that what he is trying to say?
Yes...
Thank you so much for explaining. I appreciate sir. 💚💚
Although I am new to crypto and Hive in general, I find it truly fascinating sometimes when I think about what we would be able to do here in a few years time. All the little and technical things of how everything works are still a bit foggy for me, but I am slowly understanding how everything works.
With so many people really noticing crypto in these past few years, most of them still don't understand the true scale of things. I think the majority of them look at pieces of information like these and just skip them because they are too long or not looking at them at all because it seems "hard" to learn something new. Especially in foreign languages.
The problem here with the masses is that a large group of people in the "social media" is that they are more used to being entertained rather than actually socializing or learning something new. Anyways...
I rarely engage in complex topics in English here on Hive, because I feel that I can't express myself properly (im Bulgarian), But for this one I felt that I want to.
In my opinion this article is a very valuable piece of information and crucial for people to understand in order to begin grasping the many things that crypto will bring with itself.
What I thought when reading this article is how awesome it would be to have this available in Bulgarian for all my compatriots in the Ecency Bulgaria group to see and eventually grasp of what is actually happening here.
It can be something we can link for future reference for newcomers and people keen to understand what is possible. So I'd like to ask for your permission to translate this article to the Ecency Bulgaria group, with giving all credit of course (and whatever else needed). Thanks in advance!
We are absolutely in a different era than that which we know.
As you put it the fourth phase.
It is just great that we will be eliminating banks and the cost they bring to the entire system!!
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if being the Cryptocurrencies let's say a new product and that comes to revolutionize the way in which we saw money it is still resisted by a large part of the economic society which does not want the users themselves to manage their money. So to learn much more about this system to have the necessary tools for the future.
Hive is really a good way to put an end to this transaction struggles
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Lo cierto de todo esto es que la libertad que nos da el realizar transacciones en criptomonedas sumado a que no interviene un tercero solo persona a persona es algo único estamos a las puertas de algo futurista y tecnológico con las finanzas descentralizadas.
Settlement is a friction in the financial system that slows down the economic engine. Part of the problem we see in a recession is the slowing down of the velocity of money. Credit cards, for example, have a 2 or 3 day settlement from the day the transaction took place. Checks can take days to clear. Even transfers take time.
Crypto settlement times overcome this friction to a large degree. In those three days, we can collectively conduct more transactions using the same money. Velocity goes through the roof.
But, as you say, this leaves out the bankers who skim off every transaction, another source of friction.
I am a fan of Dash and Stellar precisely because they settle quickly and cost very little. If HIVE/HBD had wider acceptance, it would be my preference.
I actually can't wait to see this and to see how the financial institutions fit in and stay relevant. There is no turning back as countries are working out how to do their digital currencies now which is good news for crypto investors as this is a big shift from where they once were.
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Is JPMorgan using crypto for collateral settlement? I didn't think they would do that when they can have the Fed and the reserves from QE as collateral instead.
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Reason I side with the crypto is because I hate bank employees, instead of hating bank owners or bankers, I hate the people who work for them, because they make the life of customers harder. Crypto would literally get rid of banking system in a way. I guess this change is long due. Financial system deserves reboot.
https://twitter.com/dividendencash/status/1530269242909663237
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There was a good Twitter thread today about finality, explaining that a protocol can't guarantee both immediate settlement and liveness. Yet Ethereum found a compromise by running two different confirmation rules at the same time after moving to proof of stake. When a significant part of the network disconnects, blocks will still be produced but finality will be postponed. (OK, I see something like that is also in the OBI proposal, but it's unclear to me what will happen when no quorum is reached at all.)
It's not reassuring to read that @blocktrades didn't study either Tendermint or Ethereum's Gasper. If Hive makes this change, the chain might become more likely to stop working during serious disruptions, like Solana.
I wouldn't be too concerned about my research level of Tindermint. I reviewed it and fully understand it since I received complaints that I hadn't bothered.But as I suspected, it was a waste of time from my perspective. Tindermint has limitations and differences that don't make it a good fit for Hive. I'll post about it eventually, when I get past more pressing issues.
As to OBI's design, it's generally much more resilient to loss of BPs than Tindermint and can continue working down to a much lower number of reachable BPs.
Awesome. This is the best time to be alive. So happy to see the money problem getting resolved through technology. We deserve a decentralized economy.
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