Imagine this situation: you live in London and you wanna buy a house in San Francisco.
The house costs 1.3 million dollars…
What comes in first?
Your payment or the handover of the keys?
If you happen to pay first, you might fall into a scam… maybe the house doesn’t really
exist or it’s not owned by the person you contacted.
Don’t forget that you live a thousand miles away from there.
You never saw that person.
And, believe me, you won’t be the first, nor the second person who lost money through
online scams.
Ridiculous as it sounds, this is one of the most complicated problems we have in economics:
trust.
But I know what you’re thinking: you clicked this video expecting something about blockchain,
cryptocurrencies or maybe bitcoin… what does this have to do with all of that?
We’ll see right now.
Nowadays, we all have heard of BITCOIN.
I’m sure many of you also know other cryptocurrencies like ETHEREUM, LITECOIN or RIPPLE.
If you have dug deeper into this matter, you might have also heard about another term:
BLOCKCHAIN.
For many, this cryptocurrency world is the ultimate revolution that will end with governments
and banks.
For other, this is just another financial bubble that will make it easier for criminals
and terrorists to hide their money from the police.
Unfortunately, the reality is way more boring than this…
Bitcoin exchange reaches deal with Barclays for UK transactions
But hold on just a second!
If you thought cryptocurrencies were just a strategy to avoid taxes…
I also have news for you…
The Swiss municipality of Chiasso is going to let residents pay their taxes in bitcoin,
its mayor has announced.
Let’s start from the beginning: BLOCKCHAIN.
Blockchain is a technology, just like Virtual Reality or the peer to peer file transferring
system.
As with every technology, you can use it for many different things.
One of them is cryptocurrencies and one of those cryptocurrencies is BITCOIN… but it
is not the only one!
Many people think these new coins will substitute legal fiat money, that is dollars, euros or
any other currency.
But it doesn’t have to be that way!
In fact, cryptocurrencies can do many other things, and we’ll take a look at some of
them.
But now, the real question is…
What is blockchain all about?
What is it used for?
And most importantly… why are banks starting to use it?
Today, we are going to answer all of these questions but, before we do, let’s take
a look back at history.
WHAT IS BLOCKCHAIN USED FOR?
Look, BitCoin was born in 2009.
Nonetheless, the technology it is based on, the Blockchain was created in 1991.
Let’s see how it works without even mentioning Bitcoin.
Why?
Because it is important to understand that Blockchain can be used for many other things.
And since this is a complicated matter, I asked Fonseca, one of the hosts of the Spanish
VisualPolitik channel to show it to you by drawing!
Let’s go back to the example of the house in San Francisco, that one that costs 1.3
million dollars.
In order to buy it, you have signed a contract with the owner but…
How do you know he or she is going to meet the agreement?
How do you know the house exists if you have never seen it in reality?
Usually, we use a trusted third party like a notary to verify it.
This notary will verify the house exists, and you talk to the owner, who’s willing
to hand over the keys when he gets the money.
This is the way any traditional contract Works.
And it has many problems.
First, many third parties mean many fees and lots of waiting any time the notary, the real
state agency or any other party wants to verify something.
But there is an even worse problem.
If somebody hacked the computer of one of those third parties, he could modify the terms
of the contract.
This means… traditional contracts are not as safe as they seem.
And this is where blockchain enters the picture.
In this case, instead of using a traditional contract, we could use a so called SMART contract.
This is a little software that executes automatically when something happens.
In this case, you could leave your 1.3 million dollars in a special account, so that at the
moment when you open the door of your new house, a sensor will notice your presence
and BOOM!
The smart contract will take your 1.3 million bucks from that special account and send it
to the seller.
In case the key doesn’t work because you’ve been tricked, then, the contract wouldn’t
execute.
OK, OK, all of this sounds great… but WHO is gonna validate all of this?
Well, in this case, we don’t need third parties or middle men anymore.
No notaries whatsoever.
In this case… we have… a NETWORK!
A network composed of all the members that use the blockchain.
Here is an example: PROPY is a company that offers real estate sales internationally through
blockchain.
Well, in this case, all the sellers and buyers inside of this platform would be nodes of
the network.
And in case you were wondering… the answer is NO.
No company has paid us to do this video.
We used that company name just to give a real life example.
So well, the great innovation of Blockchain is that its users will always have a copy
of the contract.
So all of them can be a point of verification.
And in case one copy does not match the copy of any other node, the system will consider
this fraud.
But not only that!
This contract will ALWAYS be stored in what we call a BLOCK.
And this block, at the same time, will be stored in a chain of blocks.
This is why we call this system blockchain.
So, if a hacker wants to modify our contract, he would have to get into all the computers
from all the members of our blockchain… at the same time.
As you can imagine, this is way harder than getting into just one computer, no matter
how secure it is.
And now you might wonder… so…
Anytime I start using some Blockchain service… will I have all the registers and transactions
that have been done inside?
The answer is YES.
In fact, if you wanna have BITCOIN, you should download ALL of the blockchain, which now
is over 160 gigabites.
And now I can hear many of you saying ‘Come on, Simon!
That’s not true!
I do have a bitcoin wallet and I didn’t have to download all of those gigabytes!’
Of course you do!
In your case, my friend, what you have is a light coin.
This means, another person downloaded those 160 gigabites and now that person is letting
you use Bitcoin through his or her server.
This said, Blockchain is starting to be used for all kinds of things.
As you have already seen, some companies offer real estate deals with smart contracts.
But there are many other applications.
You can even have website hosting with blockchain, so many computers inside of a network would
have the data.
Other companies offer medical records storage, etc…
But OK, we’ve already told you what Blockchain is all about… now there is a second part
and that is…
What do banks have to do with all of this?
We’re gonna check that out right now.
SURVIVAL OF THE FITTEST
If there is one thing that generates all kinds of gossip, mixed signals and conspiracy theories…
it’s cryptocurrencies.
You just need to google the name of any famous company, followed by the word ‘cryptocurrency’
and you will get some blog that claims that this firm wants to get its own cryptocoin,
or the opposite, or both things at the same time.
The information noise is so pervasive that it is almost impossible to separate the wheat
from the chaff.
And this is also a heads up for you guys who might wanna start investing in this industry:
watch out!
I’m not telling you not to do it.
But be careful because there is a lot of hype.
And this is why, to do this video, we talked straight to the sources so we could corroborate
that THIS is true.
BBVA and Indra will make the World´s first blockchain based corporate loan
In this case, Indra is a Spanish engineering company and BBVA is a large Spanish bank.
The idea is pretty similar to what we said about the house in San Francisco.
In this case, BBVA signs a contract with INDRA and all the members inside of the blockchain
will have a copy of the same.
What’s the advantage of all this?
It would prevent internal corruption.
Some people might want to exaggerate the cost of some building in order to get some money
in his pocket.
But if they have a smart contract, and everybody has a copy of this one, they can track every
transaction.
This means that both the company and the bank are protecting themselves from their own workers.
But we aren’t only talking about loans here!
As we said before, Blockchain can be used for many other things.
And, apparently, Spanish banks want to pioneer this.
Here is another example.
Santander to launch the first blockchain based International Money transfer service
In this case, we are talking again about reducing verification times.
You see, anytime you make an international money transfer, you have lots of intermediary
banks.
For instance, if you wanna send 1000 USD to a friend in Germany, somebody has to verify
that you have 1000 USD less and your friend has 1000 more.
Add to this the problems from the currency exchange and you have lots of intermediaries
that need to be in contact and verify every step of the process.
Companies like RIPPLE use blockchain to do this in a matter of seconds.
And this is why Santander will now start making international transfers from one day to the
other.
In fact, both Santander and BBVA have been investing in cryptocurrency companies for
years.
There are all kinds of blockchain platforms that the main European banks are members of.
From Wetrade to the Spanish Alastria.
How much of a future do these projects have?
We don’t know.
But clearly, it shows an interest from traditional banks in not missing out these technologies.
And now I know what you are thinking… so far, we just talked about faster transactions
and safer contracts… nothing really exciting, right?
Where is that revolution some people are talking about?
Well… believe me, there is a potential revolution.
But we will talk about that in the following weeks.
In the meantime, don’t forget to subscribe to VisualPolitik, and click on the bell icon
so you don’t miss any of our posts.
Now it’s your turn… so far, we talked about banks using blockchain technology but…
what about the cryptocurrencies?
Yes, Barclays is offering services in Bitcoin but…
Will they use it as a normal thing?
Will we see new kinds of services thanks to cryptocurrencies?
Please, leave your answer in the comment section below.
Also, don’t forget to visit our friends from reconsider media podcast, the podcast
that provided the voices in this video that were not mine.
If you liked this video, give us a thumbs up and, as always, I’ll see you next time.