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By Valentin Schmid
"We have developed technologies that allow us to go back to the village," said Joseph Lubin, COO of Ethereum, a leader in developing applications and services based on bitcoin technology.
Lubin refers to the consensus rule that applied in ancient times, as opposed to the hierarchical organizations that rule the world today. But how could the futuristic bitcoin system, which solves mathematical puzzles to validate transactions, achieve that? If we take a financial transaction as an example, one of its applications would be to pay for software online with bitcoins. Now, instead of a party like Visa or Mastercard saying if the transaction is valid based on whether it meets all the requirements of their systems, the entire network of participants has to agree that it meets the requirements established in the initial protocol , which is open source. Impartiality
The beauty of this consensus-based approach is its inherent fairness and resistance to corruption. "There will always be ways to manipulate people into making bad decisions, but there will be no way to manipulate the system itself," explains Lubin.
The system that Ethereum and some other companies are developing is impartial because the protocol and laws of the game are open source and cannot be arbitrarily changed. Each transaction is registered in a centralized ledger, the so-called ‘blockchain’, so that everyone can see and validate them. Of course, only the code is visible, the transaction details are hidden, and user identities are anonymous by default. The system is incorruptible because "there is no central control point," according to Lubin.
Given that the 'peer-to-peer' network consists of thousands or millions of so-called 'miners' - they are paid in virtual currencies such as bitcoin for validating transactions - there is no particular actor that has control over the data, which they are always encrypted.
This is the exact opposite of monolithic entities like Visa or Mastercard, which in the past have lobbied WikiLeaks to stop transactions, for example.
Other examples of abuse of centralized decision-making power include Facebook and Google, which turned over private data in bulk to the NSA because an individual company can be pressured.
But that cannot happen with thousands of different actors. “There are 50,000 out there, go talk to them. None of them can decrypt the data, only the people with the secret key can decrypt things, "says Lubin. Because the keys are in the hands of individuals and private companies, only they can decrypt the data that belongs to them. Everything goes
In terms of potential applications, the possibilities are endless. “We could transmit any kind of value. There is a whole world of possibilities, and we are just beginning to imagine it, ”says Gil Luria, analyst at Wedbush securities, one of the first investment firms to publish research on bitcoin.
“Pretty much anything you can imagine can be reformulated as a distributed system. A lot of things will happen to 'blockchain' technology, ”says Lubin.
The Ethereum system, for example, will be able to host decentralized applications such as online payments, messaging and decentralized shopping sites, thus replacing centralized systems such as eBay or Amazon, and even stock exchanges. Efficiency
An important area in which the efficiency of technology could play a major role is in the real estate market.
"Real estate transactions are one of the most cumbersome illiquid transactions that could have been designed," Luria said. According to him, title and trust companies, in addition to agents, make a lot of money by facilitating the transaction between buyer and seller. "When you have a centralized ledger [the 'blockchain'] that everyone can see and is fully auditable, you can do multi-signature transactions, you can change the process," says Luria, eliminating intermediaries and reducing transaction costs.
"At some point, which will not be tomorrow but at most in ten years, we will be able to reach a point where real estate transactions could be completed in an hour, in contrast to the more than 30 days they currently take," explains Luria.
Lubin agrees that real estate transactions will improve with blockchain technology, adding that the same will happen with insurance. "People are putting their money into self-insurance, and this could be done on any scale," he said. According to him, any number of people could enter into a contract on the ‘blockchain’ and deposit money to be paid in case of damage.
In the event of damage, a real-world validator would still be needed to confirm the specifications set out in the online contract. But then the insurance could be collected immediately, without the insurance company employees or shareholders keeping a piece. Vulnerability
Despite the decentralized design of the current bitcoin system, there is a major flaw, which Lubin says could still be exploited. "If the Chinese government wants to do away with bitcoin, it can churn out a huge amount [of specialized mining computers] and suddenly have more than 50% of the power of the network."
Consensus means that your solution has to be accepted by more than 50% of the network. If you control more than 50%, you are the one who makes the decisions. "It's possible. It would be extremely unpopular politically. Bitcoin is still very small, so it doesn't make much sense for governments to attack it that way, ”says Lubin.
Because of this, Ethereum is designing its system in a way that it can avoid some of the problems that bitcoin faces.
“Ethereum miners will be difficult to centralize. We will create a protection with a working algorithm that makes creating specialized mining computers extremely difficult and unprofitable, ”he said. The algorithm itself could undergo changes. “I don't think bitcoin should be more than a funneling financial infrastructure for the encryption industry. Ethereum, since it is software, will have to improve, just like normal applications, ”he said.
The Epoch Times