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How a technology called ethereum can replace bankers, lawyers’ functions

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How a technology called ethereum can replace bankers, lawyers’ functions

07:15 PM August 21, 2017
Ethereum

Image: Ethereum Foundation

Cryptocurrencies have been gaining popularity as a response to centralized systems with important information that are prone to attack, whether it be banks or hospitals. It also allows people to have better control of their transactions without having to go through a third party.

There are a hundred types of cryptocurrencies, the most prominent being bitcoin which opened the floodgates to cryptocurrency.

Bitcoin has seen an immense rise in value and is currently worth $4,000. Ether, its closest competitor, is valued at $295.33. That said, they are both volatile currencies and experience “flash crashes” that can dip the currency’s value to a few cents.

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However, ether has opened new opportunities for digital currencies and software development through its blockchain, ethereum.

Where bitcoin’s blockchain works as a ledger of transactions, ethereum is an open-source platform where any software can be written on.

Ethereum takes decentralization a step further by opening this up to any online application that can be developed on its platform.

What are the main differences between bitcoin and ether?

With bitcoin, counterfeiting is avoided because transactions are authenticated through algorithms. Once you announce to the network that you are sending a bitcoin, computers will need to solve mathematical formulas to prove that it’s real, and only then will it be put on the global blockchain.

Through ethereum, besides tracking, all parts of a transaction can be automated depending on what it is programmed for. It does this through a technology called smart contracts, which will be discussed later.

Ether, as the founders of the cryptocurrency claim, does not intend to be a typical currency. Instead, it is a means of payment—like a token—so that you can use ethereum.

With that, it can be complementary to bitcoin. For instance, you can build a software on ethereum that trades bitcoin or any digital currency.

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Another difference is ownership. While the main goal of cryptocurrencies is decentralization, volunteers need to do tasks like mining and computations for the blockchain. This is how bitcoin runs, and its creator remains unknown except that the person (or group) is reportedly named Satoshi Nakamoto.

On the other hand, a foundation runs ethereum. Born in Russia and raised in Toronto, Vitalik Buterin created the technology after being inspired by bitcoin. He now heads the Ethereum Foundation’s research team.

A key difference also is the code used behind both cryptocurrency technologies. Bitcoin applies C++, which isn’t used widely because of its complexity.

How does ethereum work?

For developers, ethereum is a better alternative to code on since they do not have to go to a third party which may reject their application. According to the foundation’s website, “applications can run exactly as programmed.”

Apps coded on ethereum also do not require its own server which conventionally makes data sharing difficult.

In the same way that the bitcoin blockchain has keys to ensure that an account is real without displaying the person’s identity, having programs run on ethereum also gives users more privacy. Another advantage is that apps can avoid being hacked since it is decentralized.

Ethereum has a technology called smart contracts which can change the way we do daily transactions.

A smart contract is a self-executing contract or a “digital trigger” of a contract, as James Florentino, CEO of Filipino web solutions company Merge Commit puts it.

This means that when certain conditions are coded, the smart contract can automatically run these on real-world applications. This can cut out intermediaries whom we pay to process routine transactions.

For instance, if used in online shopping, the smart contract can be coded in such a way that the payment will not be deposited to the vendor until tracking data confirms that the package was successfully delivered.

Because of this, the smart contract is predicted to replace certain functions of lawyers and bankers. An example is mortgage payments: banks act as the middleman between a borrower and an investor to pay off a loan.

However, instead of paying processing fees to a bank so that it could receive and send payments, through smart contracts, processes can be made directly between lender and investor, and owning a home could become cheaper.

It also makes systems more trustworthy: instead of relying on a person to know and implement the conditions of a contract, a completely objective computer makes sure that all stakeholders hold their side of the bargain—and dish out the penalty if they don’t.

How can Filipinos use it?

Florentino and Joseph Ross Lee, chief commercial officer of Merge Commit, envision private and public organizations to have smoother and safer transactions with programs made on ethereum.

A project they want to embark on is a national ID system. Instead of having a separate ID and processes for services like SSS, Philhealth and PAG-IBIG, all of these could be on a single blockchain. The blockchain can also be made available only to relevant personnel to ensure data privacy.

The smart contracts can validate every transaction, whether it be paying dues or processing loans. This could be cheaper for the government since it saves time and does not require paperwork.

“If we intend to go cashless and paperless, the blockchain is one of the special technologies which can solve inefficiencies,” explains Florentino.

International banks are already interested in building their own blockchains with ethereum. These include UBS, a global financial services company, and Barclays, a British multinational bank.

Through its website, ethereum.org, the Ethereum Foundation provides resources accessible to the public, so that people can start building their own decentralized applications. JB

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TAGS: bitcoin, cryptocurrency, ether, Ethereum
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