by Giacomo Altadonna
As my colleagues and I already hinted in our previous articles, Blockchain technology is not all about cryptocurrencies. In the Blockchain world, we talk about “Blockchain 2.0” when we refer to blockchain software developed not to create cryptocurrencies, but to develop a substrate in order to develop independent applications on it. These independent applications are called DApps, which stands for Decentralized Applications. While Bitcoin was conceived as a form of payment, DApps can do many different things more or less related to the financial world.
Generally, DApps run on an open source software. This means that everyone can take a single substrate and modify it as he or she prefers. The most important case is Ethereum, which is the Blockchain developed by the Canadian developer Vitalik Buterin. Ethereum gives the user a blockchain-structured software leaving the user free to develop whichever kind of app he prefers writing code in whatever language he likes. Ethereum was born in 2015, but the first DAPPs were born on Bitcoin almost immediately.
Bitcoin was born from the Cypherpunk movement, which was full of anarcho-libertarians and utopists. Ironically, the first decentralized application was a betting application. Casinos are hot stuff. You go there and you bet, but you have to put a lot of trust in the institution that organizes your blackjack game or set up the slot machines. Obviously, these institutions are heavily regulated, but how do you know that there is no magnet in the roulette or that the slot machine is not tricked?
Nowadays, most of betting happens online. The situation gets even trickier here, especially when probability is involved. The odds of getting a determined number rolling a die depend on a casual number generator, which, however, runs on the main server owned by the betting company. It does not require a conspirator to understand how fragile this system can be.
The first DApp used the random algorithm developed by Satoshi to generate probabilities starting from the mathematical puzzles solved by the miners. The creators asked only a 4% fee on each bet. When Bitcoin started and not many commercial enterprises accepted it as a form of payment, having something to do with them was nice and enjoyable.
However, Bitcoin 2.0 came back focusing on the first ideas that generated Bitcoin, first of all the enormous world of the unbanked population. In the world, only 2 billion people have a bank account and the banks are the foundations for our current financial world. Bitcoin 2.0 gave birth to applications to help the unbanked, from money exchange at low fees, to ways to store value or register assets. Ripple was born to exchange currencies without suffering the high fees imposed by banks or middlemen, while Africa is now full of projects to register people’s assets on blockchain. We know that it is credit that fosters the economy, but banks don’t want to do business in undeveloped regions of the world. People who cannot prove that they own collateral have no chance to obtain funds. Blockchain applications now focus on registering assets where governments or banks have no interest in doing so and offer alternative ways of financing. Microfinancing now runs on blockchain.
Blockchain applications arrive where banks have no interest in arriving. Argentina is another good example. Argentinian are used to suffer terrible financial crisis every ten years or so and have no trust in their government or in the banks. Less than an Argentinian over three has a bank account and generally they prefer to trust unofficial money transfer centers and exchanges. Blockchain applications offer alternatives to transfer money abroad and store value against rampant inflation. With blockchain you avoid a corrupt and greedy government, unstable banks, and illegal money transfer offices.
As always, we focus on trust. DApps allow you to avoid giving trust to organization that do not deserve it, not only in finance. Understanding how Blockchain works is not easy, because it requires a radical change in our perspective. The first important step is to understand that with DApps there is no central server or authority. Everything is back in your hand and you are not required to trust any third party. Examining the Argentina example makes everything clearer. The peso is considered a joke to store value, due to high inflation rate. What would you? The easiest option is to buy dollars or gold, but the government doesn’t want you to do so and impose discouraging exchange rates or a cap to the total amount of dollars or gold owned. Here blockchain comes at help. Store your wealth in cryptocurrencies and no-one will ever freeze your bank account, or impose a limit on your possessions.