It's a technology that's slowly becoming a major part of our lives... but you might not even know its name.
I'm talking about blockchain.
Yesterday, we introduced you to some of the basics of blockchain, including how it's changing the way the federal government does business.
Today, we're going to explain how blockchain works and how blockchain can change literally everything in our economy...
The blockchain solves a simple problem – how to verify transactions – with elegant and ingenious mathematics.
Without the blockchain, transactions can only occur with a trusted partner or intermediary. You can't simply verify a transaction on its own.
For instance, take the problem of digital money. If someone bought a product from you with a "digital dollar," how would you know it was real? More specifically, how would you know it really belonged to the person paying you and that it didn't belong to someone else?
Prior to the blockchain, someone somewhere had to keep a ledger. This could be a bank, a government, or some other trusted institution. It would know that Alice had $10. When she sends $10 to Bob, he checks with the intermediary to see if she really has that money to spend. With digital transactions, you can't tell if that's already been spent without the intermediary. Alice can send $10 to Bob and $10 to Chris. This is known as the double-spending problem.
The blockchain does things differently. With a blockchain, everyone keeps the ledger. And the mathematics of adding to the ledger makes sure that everyone keeps the same ledger, and no one can put in false information.
I'll admit this doesn't sound exciting. In fact, it sounds like dull-as-dishwater record-keeping.
But you have to think a few steps down the line to understand just what the blockchain can make possible. It introduces an entirely new type of transaction that was never possible before.
And our entire economy is – by definition – just a large mass of transactions.
The blockchain can facilitate stock trading, mortgage lending, how you get your prescriptions or share your medical records, how you verify transfers of information from new "smart" devices, and so much more.
Everything is a transaction. And every type of transaction can be recorded via the blockchain.
The key words to remember here are "public" and "immutable." The blockchain is a public and immutable ledger that anyone can see (or anyone in the group, that is). And once an entry is accepted, it can't be changed or faked.
That makes for powerful, high-security, mission-critical uses.
Here are some big-picture applications the blockchain can be used for...
Property and Real Estate
If you've ever bought a house, you know about the loads of paperwork, escrow, and courthouse filings. Your county records office probably has millions of documents tracking every transfer and tax payment on every piece of real estate... going back decades.
Adding anything to the records takes an entire industry of lawyers, notaries, and real estate agents.
And the system is so unreliable that you still need to buy title insurance. (This is a policy that protects your mortgage lender if it turns out the person who sold you the house didn't own it in the first place. In 2015, this was a $12 billion industry.)
That entire system can be streamlined with the use of a blockchain, making it easier and cheaper to add things to the records, and making the system more dependable.
Rather than a hall of records, the entire database takes up a few gigabytes that are spread across a network of computers. You can't make changes to the database without the proper credentials. And there can never be a conflict between two sets of records.
And just like that, the blockchain revolutionizes real estate.
A blockchain can be used to verify identities across the Internet to allow payments, system access, or entry into any other system that needs proof of who's at the other end.
In a nontechnical version, each user gets half a password and the other half is stored publicly on the blockchain. To do anything that requires your identity, you can have your secret half matched up with your public half to prove who you are.
Anyone can verify your identity within seconds.
(That's an oversimplification of private-public key cryptography, but it's all we need to know for our purposes.)
And just like that, the blockchain revolutionizes Internet security.
Let's consider you make a contract with another party. The contract states that when a certain event happens – like a shipment of goods – you'll send them money.
Now, you could write that contract, agree to it, and if anything goes wrong, you end up in court. Or you could use a "smart contract" based on the blockchain.
The smart contract is a computer code. It's set up so that when the shipment goes through, the money is automatically transferred.
Who gets to keep the computer code? Who makes sure it's running? What if someone changes it?
Well, it's all on the blockchain. The contract is public to both parties and immutable. You can be sure of exactly what the code is, how it will be executed, and that no one can sneak in and change it on you.
Blockchain thinkers have developed models to move the entire legal system to the blockchain.
And just like that, the blockchain revolutionizes our contract law.
Chain of Things
Have you heard of the Internet of things? It's the concept that as we get more computer chips and connectivity into every device, they'll all be networked together and communicate.
The most cited examples are consumer matters, like your fridge knowing you're out of milk and ordering more. But it can be much more than that.
Industrial facilities can track every piece of equipment in a factory. Self-driving cars can communicate with each other and swoop through intersections, inches apart, without ever crashing. The power grid can communicate with every household to optimize power loads.
The trouble is security. Passing data between all these devices opens up major problems. If your car is connected to the Internet, a determined hacker could drive you into a river.
The blockchain can fix that. It can provide an open and accessible codebase that can't be changed without proper permissions. It can verify devices. It can confirm instructions. It can manage the terabytes of data that will be created.
Internet of things is big. And it has been talked about for years. But the blockchain is the technology necessary to actually make it happen.
And just like that, the blockchain revolutionizes... well... everything.
We can go on and on. The blockchain can be used to measure energy usage on our power grid, plus to secure and protect your own data like medical or financial records. Since blockchain transactions are so cheap, they can be used for micropayments of pennies that can completely change the way businesses interact with customers.
As with much technology, each little advance in the blockchain will open up vast new worlds of business and opportunity. It'd be foolish to think we could foresee everything that will happen when such radical changes are afoot.
And since the blockchain can revolutionize so many industries, a lot of money will be made by the businesses that can make that happen.
I'll be the first to admit that trying to understand blockchain and all the different kinds of cryptocurrencies can make your head hurt. But once you really understand how revolutionary blockchain is, only then can you start to see the massive profit potential.
On Wednesday, our cryptocurrency expert, Eric Wade, explained why now is the time to start profiting from this revolutionary technology. You don't need to spend your time trying to understand all the intricacies... Eric does the hard work for you.
According to Eric, we're talking about what's essentially a new frontier... He believes those who get in the earliest stand to reap the lion's share of the rewards.
If you missed Eric's special presentation, click here to watch it now.
What We're Reading...
- Did you miss it? Read Part I of our series on blockchain.
- Something different: American life expectancy just had its biggest drop since World War II.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
July 22, 2021