Blockchain: A solution to fix torn economies
Blockchain technology is part of the wider fintech phenomenon which is currently sweeping the globe. As an acronym of financial technology, it encompasses modern financial softwares and in some cases full-fledge tech-savvy companies, which are wholly dedicated to the commercial world, in providing them with the latest online solutions or improvising upon the existing digital services, already in use. Blockchain emerged as a safe, efficient and alternate medium for online transmission of assets, money and information. It has proved to be an extremely important break-through as it has completely circumvented the incumbent role served by the financial institutions in general and the traditional banks in particular, as the third party intermediariesduring financial transactions.
Intrinsically, it is a very unique blend of various notions, derived from a host of other established fields. Blockchain successfully amalgamates user-specific information security and online identity-generation protocols, advanced versions of distributed network technologies which are comparable to the levels employed by Git and Tor, prevailing theories relating to the contemporary spheres of governance and economics, mathematical cryptography and last but not the least, financial accounting concepts pertaining to the maintenance of the actual ledgers, account balances and monetary transfers.
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Alternatively, it is also referred as the distributed ledger technology. The system comprises of a decentralised register on the internet, which is equipped to support a constantly expanding data library. After being authenticated and commissioned, each single transaction duly gets documented on the ledger, in a strict chronological fashion. The distributed ledger is fully protected from alterations through a unique system of chains of blocks. Every single block gets attached to its preceding block in a secure manner, with a distinct time-stamp generated for each successive transaction. The registered transactions then remain continuously visible and accessible throughout. Resultantly, the blockchain network is therefore able to accommodate all sorts of special requests for substantiation at any point of time.
Blockchain technology came to the forefront due to its inherent use in the well-knownand first-ever successful cryptocurrency of our time, Bitcoin, for which it proficiently enabled a highly devolved platform for payments via digital currency transfers, the world over.On a reciprocal basis, bitcoin too on its part,has remained as the face of blockchain ever since its inception.
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Cryptocurrencies such as Bitcoin, make use of a digital mechanism which is electronically encrypted and permits the users to carry out online transactions with the help of digital coins. This function is called a crypto-wallet, wherein each crypto-wallet comes replete with two distinct keys. One of them is a public key and is visible to everyone on the smart network, whereas the other serves as a private key for an individual user.
The bitcoin operational practices heavily borrow from the Simple Mail Transfer Protocol (SMTP), which allow for all sorts of internet users to constantly stay connected with each other through e-mails, irrespective of the provider of their individual e-mail services. In a similar manner, without taking into account the individual banks used by the respective parties to a transaction, the bitcoin procedures still make possible the transmission of money amongst them.
An overwhelming majority of the cryptocurrency transfers have an anonymous nature by keeping the true identities of both sides involved in the transaction, as strictly confidential. When it comes to the record maintenance, the traditional role played by the banks is taken-over by the blockchain ledger itself. As trusted third parties, banks have been responsible to account for the names of the parties, timing of the transaction and the amount of money spent. In return for their services, the banks charge a commission. In the case of blockchain ledger however, the service is either free or incurs negligible charges. It is therefore, extremely noteworthy that money transfers involving cryptocurrencies have proven to be highly economical and time-effective. This distinction becomes even more prominent during intercontinental money transfers, wherein the traditional modes make the remitter susceptible to pay high commissions and yet he still has to wait for days and in some cases even weeks, before the funds get cleared and are actually deposited into the intended recipient’s account. While digital currency transfers occur within seconds.
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Blockchain technology has actually initiated a second wave of network computing, which is more focused on the provision of safe and end-to-end computationally encrypted smart networks, which are fully capable of value-based transfers representing both money and assets. Smart networks are distinguished by the fact, which such networks carry out the value-based transfers themselves. For this purpose, Artificial Intelligence (AI) is inherently installed into their processes via advanced softwares, which aid in their systems to recognise, authenticate and classify the various transactions coming along into the networks accordingly. One good example of these complex protocols is the proof-of-work concept, which is employed by the bitcoin. It is also known as mining. Mining helps generate an “algorithmic trust” which addresses the financial contribution of the network personnel, called miners, who are responsible for the maintenance of the bitcoin smart network by performing mathematical authentication upon all the transactions individually, before they are transposed onto the register. An algorithmic trust is in itself a very revolutionary idea because unlike traditional trusts, it is not exclusively limited to human agents only. In return for the provision of their computational resources, the algorithmic trust rewards the miners in the shape of freshly generated cryptocoins. This is the underlying reason, as to why no transaction charges are levied on the parties involved, since the system is able to carry out the verification process due to the crucial support provided by the miners.
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Moreover, the distributed ledger technology acts as a safeguard against the issue of double-spending. This had been a recurring problem with all sorts of online transfers, prior to its introduction. The ledger is structured in such a way that it can only be systematically appended, which reduces the margin of error and simultaneously also makes it tremendously difficult to be hacked and tempered with.
It is pertinent to state that money transfers happen to be just one of the many functions of the blockchain technology. Blockchain has now started to prove its mettle in keeping track of and transmitting digital assets online. After they undergo the“digitisation” process,the distributed ledgers make the auctioning, acquisition, registration and tracking of smart goods extremely easy and efficient.
Any digital registry imbued with a blockchain system can significantly reduce the chances of the smart assets of being appropriated or duplicated. Furthermore, the ownership transfers of such assets, which can include amongst automobiles, homes, mortgages, along with a range of insurance and financial products, can now be sped up and automated to a much greater extent than ever before. Even more importantly, the blockchain registry can prove to be an excellent tool to preserve the veracity and legitimacy of documents containing sensitive information, such as birth certificates, passports, driver’s licenses, wills and death certificates.
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If Pakistan’s government likes the idea of decentralised money, then there is no harm to at least consider the possibility of decentralising the whole financial markets as well, because blockchain technology has the potential to provide Pakistan with the most feasible replacements to various arbitrators, for instance clearing houses, banks and other financial institutes delivering such services. These traditional institutes are not only outdated, butremain prone to oiling and excessive corruption.
A part from their pivotal role in the functioning of cryptocurrencies, blockchain fulfils an even larger function in the operation of the smart contracts. The concept of smart contracts can play a crucial role to effectively regulate options, bonds, stock markets and its shares and last but not the least, mortgages and smart property. After acknowledging the success of blockchain databases in accumulating, composing and distributing transactional data for digital currency transmissions, it has gained many supporters in the financial community who now wish to utilise this highly-specialised infrastructure for accounting purposes as well. In fact, it has been postulated that totally new accounting software with built-in smart contracts concept is already under consideration. If given the go-ahead signal, this forthcoming system would be self-sufficient in the payment of bills, coupled with the automatic recording and execution of all sorts of other transactions too.
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It is worthwhile to specify that smart networks do not rely on conventional institutions, which involve significant human interactions. Blockchain therefore has a huge potential to move the Pakistani society towards computationally-operatedorganisational structures.This will systematically make human-based and hence corruption-prone, brick-and-mortar establishments becoming gradually obsolete. A successful automation of all the essential services inPakistan would be a great victory for the common downtrodden masses, which are constantly put downby the bureaucratic hurdles throughout their lives almost on a daily basis.
For emerging economies including Pakistan, blockchain can serve as a “leapfrog platform”to quickly catch up with the rest of the world. Since property transfer and land titling systems have often been identifiedas the backbone in the economic development of any society, therefore the state of Pakistan should consider adopting the use of blockchain-based smart asset registries.This is all the more relevant in the prevailing environment since the current ruling party PTI pledged ground-breaking reforms to upgrade our centuries old Patwari-based land revenue system with some work already being done in this regard. Although this system was extremely advanced for its time, when it was first introduced by the highly adept Sher Shah Suri back in the first half of the 16th century, nevertheless a massive overhaul is the need of the hour now.This is because of the human involvement at the grassroot level in the shape of the politically-inclined Patwaris, who frequently bully the small-scale farmers and uneducated villagersof Pakistan. More often than not, poor citizens find themselves deprived of their titles and in the case of any encroachment upon their lands, there is no place where they can go to seek a remedy, including our infamous courts.In fact our justice system possesses the unique honour of prolonging a simple land-dispute case down to three/four successive generations and still ultimatelysiding with the powerful and the “rich” party, which is unfortunately, usually the aggressor in most cases. Hence, blockchain-based land registration systems will not only empower the common Pakistani folk, but most notably it will help break the back of the scourge of land mafias which have expanded substantially in size in the past couple of decades.
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Pakistan got the distinction of becoming the first nation to switch to EVDO’s RevB 3G technology on its independence day in 2010 and going by that rate it should have also made a quick transition to 4G technology, when it surfaced, but it did not happen because by then, two of the corrupt political parties of Pakistan, namely the Pakistan Peoples’ Party (PPP) and the Pakistan Muslim League – N (PMLN) again came to power one after the other. These parties have a reputation of putting national interests on hold, until they receive huge personal commissions and private kick-backs. Hence there was an obvious delay when it came to issuing and granting the 4G licences to the respective telecom operators in Pakistan. After going through the potential impacts which blockchain applications have already started to exert across various fields, it would make sense if the incumbent government of Pakistan seriously starts to contemplate about apportioning significant resources to invest in the blockchain technology. Without wasting anymore time, it should embark on a journey to gradually migrate all of its national databases to smart networks.
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Similarly, special subsidies should be given to the private sector, so as to encourage established corporations and new start-ups alike, to gyrate towards the use of secure online registries. Pakistan’s Small and Medium-sized Enterprises (SMEs) should also seriously explore and try to gain maximum leverage from the novel concepts of capital-raising initiatives, which blockchain technology has shown to be fully capable of facilitating. They happen to be the crowd-funding services and the peer-to-peer lending, with Koinify and Btc-jam being well-renowned examples of these two, respectively. Such methods can strengthen Pakistan’s SME fraternity. As a society, it is high time that Pakistan re-engineers a plethora of its different governmental, economic and legal services in order to better reflect and adjust to the realities of this fintech era. The future belongs to those countries that are not afraid of adopting the most-recent technological advances. Pakistan does not need to look much further, just across its northern border, China, the new emerging superpower, has a beaming fintech sector. The secret of its success lies in the fact that in recent years it has never shied away in experimenting and becoming the pioneer with previously unchartered technology, be it the fintech-based digital Yuan initiative or the telecom-centred 5G network venture!
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–The writer has a degree in Master of Accounting (Professional) from Macquarie University, Sydney, Australia. Currently a Research Scholar, working as an Analyst in Sedgwick Australia Pty Ltd. He can be reached at hamzanasir666@gmail.com
Article source: https://nation.com.pk/14-Jul-2020/blockchain-a-solution-to-fix-torn-economies