Blockchain and Cryptocurrency Role of Technology Towards Financial Inclusion?

Blockchain and Cryptocurrency is a very disruptive technology. Tapscott and Tapscott (2016) illustrate that blockchain is a revolutionary technology in the 21st century.

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According to Swan, blockchain has the potential to change various lives both social, economic, political, government, law and culture.

“We should think about the Blockchain as another class of thing like the Internet—a comprehensive information technology with tiered technical levels and multiple classes of applications for any form of asset registry, inventory, and exchange, including every area of finance, economics, and money; hard assets (physical property, homes, cars); and intangible assets (votes, ideas, reputation, intention, health data, information, etc.). But the Blockchain concept is even more; it is a new organizing paradigm for the discovery, valuation, and transfer of all quanta (discrete units) of anything, and potentially for the coordination of all human activity at a much larger scale than has been possible before”. (Swan 2015:vii).

The existence of Bockchain technology has a fairly long history and is thought to be related to a group calling itself Cypherpunk. This group wants privacy in economic transactions and social relations in the era of open society and all-electronic. When several parties make a transaction it must be ensured that each party only knows the content of the transaction. The identity of the parties to the transaction must be ascertained as small as possible revealed to other parties or the public.

“Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn't want the whole world to know, but a secret matter is something one doesn't want anybody to know. Privacy is the power to selectively reveal oneself to the world.”* (Cypherpunk Manifesto, 1993).

The emergence of the blockchain with its first cryptocurrency namely bitcoin coincided with the occurrence of the global financial industry crisis in 2008 which caused people to be distrustful of banking institutions. Someone or a group of people who call themselves Satoshi Nakamoto then publish a paper entitled "Bitcoin: A Peer-to-Peer Electronic Cash System" (Nakamoto, 2008). The paper provides a brief description of the protocol for conducting electronic currency transfers directly ( peer-to-peer ) using cryptocurrency called bitcoin.

Cryptocurrency as a digital currency is different from traditional currencies ( fiat currency) because its existence is not created or controlled by the state. At the beginning of its emergence, blockchain technology was identified with bitcoin and Distributed Ledger Technology ( DLT ), which is a master book ( ledger ) whose function is to record various transactions that occur within the blockchain network. DLT itself is public, transparent and immutable so that it can be audited openly. But in subsequent developments, the blockhain did not only function to record transactions but began to enter the economic, business, legal, political, social, humanitarian and scientific domains. In the economic sphere, the most important innovation given by Blockchain is the existence of decentralized payment and exchange transactions, the sale and purchase of tokens, digital assets and smart contracts (smart contract ). This innovation has never existed in the era of network computer technology ( web ) before.

Another feature of the blockchain is the process of coordination, recording and transactions that have been carried out cannot be changed or canceled (tamper proof). With this unique architecture, blockchain can be a place to store various records both individuals, organizations and communities in the form of documents, identity and digital assets. Besides being recorded, ownership of the asset or property can be changed to smart property by encrypting and providing a unique signature (digital signature) so that the asset can be tracked, controlled or exchanged within the blockchain.
All tangible assets such as houses or vehicles or other intangible assets can be registered and transacted on the blockchain. One digital asset that can be registered is for example Intellectual Property Rights (IPR) such as patents and others. Another major innovation from blockchain technology is a proof mechanism for a transaction that does not require mutual trust among its users (trustless). They simply entrust the ledger system (ledger) which is public and interconnected through decentralized nodes and managed by miners who act as accountants.

The miners have two functions, namely as volunteers and accountants to help record transactions on the blockchain. The miners dedicate their computing resources to secure and process various transactions within the blockchain network. They competed with each other to verify transactions and then put them in blocks arranged in a chronological order. The new block is connected to the previous block which is secured by using the "hash" function as a digital marker to ensure the authenticity of the transaction data. Every miner who succeeds in entering a new block into the blockchain network will get a reward in the form of digital coins (bitcoin) which can then be used as a means of payment for buying goods and services or stored as digital assets - such as precious metals (gold) - that have value or are traded at cryptocurrency market. The new block is connected to the previous block which is secured by using the "hash" function as a digital marker to ensure the authenticity of the transaction data.

Every miner who succeeds in entering a new block into the blockchain network will get a reward in the form of digital coins (bitcoin) which can then be used as a means of payment for buying goods and services or stored as digital assets - such as precious metals (gold) - that have value or are traded at cryptocurrency market. The new block is connected to the previous block which is secured by using the "hash" function as a digital marker to ensure the authenticity of the transaction data. Every miner who succeeds in entering a new block into the blockchain network will get a reward in the form of digital coins (bitcoin) which can then be used as a means of payment for buying goods and services or stored as digital assets - such as precious metals (gold) - that have value or are traded at cryptocurrency market.

At present, there are around 2094 types of cryptocurrency traded on the crypto currency market. Of these there are three crypto currencies with the largest capitalization, namely bitcoin, ethereum and ripple where bitcoin is the largest. The total number of bitcoins is 21,000,000 BTC and in November 2018 bitcoins in circulation reached 17,354,812 BTC. The decentralized bookkeeping (database) is the antithesis of the centralized database which has been widely used. Although the centralized database has been successful in solving the problem of double-spending. But unfortunately all users must first be registered on a central server in order to be operational.

Therefore, through this centralized database all users' identities and their financial records can be known. A centralized database is also an easy target to hack from both inside and outside because it has a central point of attack and failure. If a hacker can control the centralized database, he can change ownership of any available funds, steal from their rightful owners or create a new token and then move the funds on his behalf. By using a blockchain, validation of transactions can be done without involving the help of a third party as an intermediary. Transactions can be done directly between users without having to entrust database updates and transaction ledgers to third parties. Trust itself is attached to the algorithm code which will immediately process the transaction when both parties have reached an agreement. The Economist calls this technology a "trust machine".

Blockchain itself continues to experience very significant developments. If blockchain 1.0 is still associated with bitcoin as a digital currency and payment tool, blockchain 2.0 has expanded its function, which can transfer assets and conduct smart contracts and smart properties. Blockchain 2.0 can be used to register various assets both tangible and intangible. Tangible assets are assets in physical form which are then encoded into digital assets such as home ownership, hotel room rental, vehicle rental, ownership or shared access to vehicles. While intangible assets include patents, trademarks, copyrights and domain names on the Internet can also be registered and transferred through the blockchain. Here are some classes and examples of the development of the blockchain 2.0 application.

Currently, the blockchain has reached the latest version, blockchain 3.0, which has exceeded its basic functions as a currency, economic transaction and market. Blockhain 3.0 will not only reconfigure the industrial sector but also various aspects of human life. Blockchain technology can facilitate a variety of coordination, interaction, and collaboration between humans and human interaction with machines. In the future, it is open to the possibility that all human activities can be coordinated using blockchain technology.

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What do you think about Blockchain and Cryptocurrency,In the era of technology?

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