Today, I want to complete the series on The Way to Financial Freedom. So far, I already made four articles on the subject. Today, I want to publish the remaining two.
In today’s context, it is futile to talk about financial freedom without touching on cutting-edge technology like blockchain and cryptocurrency. I have been with financial literacy advocacy since 2009 and I have yet to see materials on financial education that includes a discussion on blockchain, cryptocurrency, and decentralized finance or DeFi.
The first Defi book that I read was The Wall Street Era Is Over, written by the industry experts at DeFiYield.App. Its first edition was released in May 2021. The book was written to serve as a guide for investors in exploring the field of cryptocurrency and Defi. However, in this first article, it is not my intention to write about Defi. I will postpone that until the concluding article. And then perhaps, since Defi is such a comprehensive topic in itself, it requires a separate series of articles to give the subject fair treatment. Once I find time, I am thinking of using the book I mentioned above as my guide in writing about the subject.
For now, our focus is on blockchain technology. It is true that many materials are already written about the subject. We have even our very own LeoGlossary that provides a detailed answer on the subject. Why then just provide the links to those content instead of writing about it?
Still, I believe that there is no replacement when it comes to personal touch in content creation. Though sites like Investopedia are more professional and just a short inquiry in ChatGpt can give anyone a comprehensive answer, still, I prefer to write my own piece for as I said I intend to use this series as material in my future module class on subjects like Financial Literacy, Business as Mission, Church and Society, and Theology of Work. Perhaps, it is time to add another subject or topic to my lectures, Finance as Mission (FAM).
The Importance of Blockchain Technology
Let us now proceed to our main topic in this article. From giving a short story taken from the Bible to an overview of three types of cash flow, I now want to touch on the importance of blockchain technology.
When I first delivered this lecture in September 2021, I had been studying the subject for more or less a month. At that time, the popular ideas in the crypto space include decentralized finance, NFTs, and para-chains. I accepted my limitation in covering these topics. Instead, I decided to just give you a brief overview of blockchain and a general introduction to decentralized finance. Once such a goal is achieved, I would like to conclude this series with a few practical steps for you to follow through.
Before we go to a more elaborate description of blockchain from Investopedia, let me first give a brief definition of a blockchain. A blockchain is defined as:
a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems recorded with an immutable cryptographic signature called a hash.
This definition itself requires further elaboration.
From here on, I want to update the key ideas I got from Investopedia with additional information from LeoGlossary. Below are the key ideas taken from Investopedia on how this financial website describes a blockchain:
A blockchain is a type of database. And so, to understand a blockchain, we also need to review our understanding of what a database is. Again, this is how Investopedia defines a database. It is:
a collection of information that is stored electronically on a computer system.
A database is further described as:
designed to house significantly larger amounts of information that can be accessed, filtered, and manipulated quickly and easily by any number of users at once.
Large databases accomplish this by storing information on servers that are constructed from powerful processors. To have the processing power and storage space required for numerous people to access the database simultaneously, these servers can occasionally be created employing hundreds or thousands of computers.
Now, “How does a blockchain differ from a database?”
A key difference between a blockchain and a database is how the data is structured on a blockchain. A blockchain collects data in what is commonly known as blocks. A newly formed block is created by combining all new information that comes after a recently added block and adding it to the chain. Blocks have certain storage limitation, and when they are filled, they are joined to the block that was filled before them to create a chain of data known as a "blockchain."
In contrast to a database, which organizes data into tables, a blockchain, as the name suggests, organizes data into chains of blocks. As a result, all databases are databases but not all blockchains are databases.
Blockchains are decentralized and transparent. This would mean that blockchains are not governed by a single entity or any central authority. Moreover, it means that anyone with an Internet connection may read every transaction that has been recorded on a blockchain at any time, anywhere.
Blockchain aims to do away with the need to trust either a financial institution or a central authority, which is one of the biggest flaws in financial transactions. The housing meltdown of 2008 made it clear that neither a financial institution nor a governing body can be trusted. This is why Satoshi Nakamoto, a mysterious individual, created the blockchain-based cryptocurrency known as Bitcoin. Satoshi characterizes Bitcoin as:
a new electronic cash system that is fully peer-to-peer, with no trusted third party.
Use Cases for Blockchain.
The current most well-known application of blockchain technology is cryptocurrency. In fact, at first I didn't know the difference between the two; I assumed they were the same thing.
Cryptocurrency is built on the blockchain technology. There were more than 8,000 cryptocurrencies available at the time this lecture was initially given in 2021, and new ones are still being launched every day.
Second, an increasing number of businesses are now adopting blockchain technology in their operation.
Third, application of blockchain to banking and finance:
Financial institutions only operate during business hours, five days a week. That means if you try to deposit a check on Friday at 6 p.m., you will likely have to wait until Monday morning to see that money hit your account. Even if you do make your deposit during business hours, the transaction can still take one to three days to verify due to the sheer volume of transactions that banks need to settle. Blockchain, on the other hand, never sleeps.
By integrating blockchain into banks, consumers can see their transactions processed in as little as 10 minutes, basically the time it takes to add a block to the blockchain, regardless of holidays or the time of day or week. With blockchain, banks also have the opportunity to exchange funds between institutions more quickly and securely.
Except from the above examples, other use cases are being developed right now for purposes more than just documenting transactions. One promising application is the use of the technology in democratic elections. The immutability of blockchain technology makes it much more difficult to conduct fraudulent voting.
Entering its 3rd decade, blockchain is increasingly gaining a reputation for itself due to Bitcoin and cryptocurrencies. With this technology, many are hopeful not only for increasing accuracy, efficiency, and security in commercial and government activities but also for the possibility to experience digital freedom. The question now is no longer about whether traditional oganizations will adopt the technology; rather, it is already considered as the future.
Source: https://www.investopedia.com/terms/b/blockchain.asp
Finally, the data from LeoGlossary. The information provided by our very own glossary is more comprehensive. Yes, it also mentioned diverse use cases of blockchain technology and cryptocurrency. However, it expanded the data to include topics like consensus mechanisms, distributed ledger technology, triple-entry accounting, base layer versus layer 2, access, settlement system, micropayments, and the idea of network states. Each of these subjects requires a separate treatment, which we cannot cover in this overview. It is important to note that a serious study of blockchain technology will involve more time and focus.
Source: /@@leoglossary/blockchain
That ends our fifth article on The Way to Financial Freedom. In the last and concluding article, we will focus on decentralized finance and practical steps on how to achieve the goal of personal financial freedom.