Blockchain Breaks Currency Insanity

Florence, 1385. Giovanni di Bicci de’ Medici, a wool trader and banker used a debit-in (DI) and credit-out (CO) double entry bookkeeping system. Although he was not the innovator, he applied this accounting method on a vast scale. This long distance trading with multiple currencies, such as gold, silver and base metals, provided many complications for Medici. He negotiated these hurdles with talent and guise, resulting in the Medici family achieving enormous wealth.

Giovanni was aware of the limits and failures of the Italian banks. He decided to decentralize his banking system to mitigate the risk of any individual branch becoming insolvent. This method of decentralization was implemented by the formation of partnerships with other bank managers, offering profit shares to help build a network of banks. In order for the decentralization of Giovanni’s banks to succeed he had to trust his managers. His good intentions and trust fell short. Greed and cooked books became prevalent and the downfall of the Medici Empire ensued. The failure of his London Branch, which went into liquidation in 1478, was the beginning of many troubles to follow. Coerced into making loans from this branch, then absorbing the debt in his severely mismanaged Bruges Branch, he sustained huge losses.

The blockchain, a shared public ledger consisting of confirmed transactions, is pioneering a form of triple entry bookkeeping, a vast improvement on the double entry system. In order for a transaction to complete between peers, it requires the users of the blockchain network to confirm the legitimacy of each transaction. These users, also known as miners, are incentivized by the reward of transaction fees and bitcoins to create blocks of transactions using cryptographic rules that prevent modification. These blocks are forced into a consecutive order, or chain. The BlockChain is then available for the network to view at any time. In other words the books can’t be cooked. This in turn keeps neutrality in the community and encourages honesty, in a genuinely decentralized ecosystem.

Unlike the Medici approach, the blockchain provides an anonymous ecosystem. This provides users with the choice of how they want to operate within the system. As Johann Gevers, Co-Founder of Monetas, stated at the European Bitcoin Convention in Amsterdam, “A decentralized network society where people once again have the power in their own hands to live lives of their own choosing in peace, freedom and prosperity.” Gevers continued "This is [made] possible by replacing people based trust mechanisms with technology based trust mechanisms. It no longer matters who is trading with whom, what matters is whether their transaction remains true, and this is the blockchain."

Medicis decentralized network worked for financial gain of bankers, but they did heavily invest in the arts, science and education of Florence. Beautiful works of art were commissioned, including Donatello’s lifesized statue of David, and the Tuscan painting The Birth of Venus by Botticelli. However, the power still remained with the few.

The cypto community is using decentralized technology to support these wonderful facets also. In the midst of the Bitcoin2014 conference in Amsterdam, the Netherlands, a local artist sold a painting for €10,000 in bitcoin. The users of the blockchain network or Bitcoiners, as they are fondly named by some, form an avid forum, news driven, social networking community. If something doesn’t add up, or a scam enters the network, this information instantly goes viral. Bitcoiner’s are ruthless in protecting this operating system. They encourage each other to be creative and successful, and those who don’t uphold these morals will be ousted for their negative intent. Here, the power remains with the many.

Giovanni encouraged his managers to open their own banks, without the Medici family name, in order to create healthy competition. Johan Gevers, speaking of his company Monetas, has similar traits stating, “we create our own competition.”. Andreas Antonopolous followed up "With the use of science and mathematics, Blockchain 2.0 is on it’s way" stated at Bitcoin Expo Toronto. This technology, not only allows for peer to peer autonomous crypto currency exchange, but can also be used to encrypt documents such as wills and deeds of ownership, and this is merely the tip of the iceberg.

B.Holmes

B.Holmes, author of The Range of Illusion and The Private Key instalments, is currently located in Thailand, researching and writing about crypto. You can follow B.Holmes on twitter @BanteringB, or contact via email: [email protected] B.Holmes will accept tips via:

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