re: The future of Bitcoin and Ethereum VIEW POST

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re: Nice write up. Thanks for introducing Stellar to me! One thing though, I don't see banks being cut away as trusted intermediaries in the foreseeab...
 

I agree, it all boils down to trust and whom you trust. However, the presence of a tamper proof medium to exchange information about exactly which transactions did or did not take place is highly relevant.

Currently, people rely on banks and other financial institutions to secure them against fraud, theft, etc. Key management is the equivalent of keeping your cash in a box under your bed. It kind of works until the place burns down or you get robbed (at gun point or otherwise). Probably a bad idea to store millions $ worth of value like that, even if you live in the equivalent of fort Knox.

It's much smarter to outsource that kind of risk to somebody that knows how to keep those keys properly and insures you against the inevitable risks. So yes, bank like institutions do have a role. However their role is going to be more limited than in the past where their role also extended to the information transfer across the globe, the speed at which this happened, and control over the channels over which this happened.

With a blockchain, once you've signed a transaction and it's record has become part of the blockchain, it is an immutable fact that anyone can verify. Banks don't add a lot of value here other than agreeing that yes this thing happened exactly as recorded on the block chain. It's the steps before that where they add value and indeed securing the potential abuse of keys under their control.

With a proper blockchain, the cost of doing such transactions is extremely low. If you get mining out of the equation, it is ballpark similarish to any good old database transaction because that is literally all it is. So it all boils down to preventing cheating, delegating trust, and keeping transaction cost low.

I'm excited about blockchains precisely because of the low cost. It enables a whole lot of new usecases where currently most people can't be bothered to transact at all and where banks flat out refuse to help you do the business because their cost outweighs the profit or is too insignificant to bother to support you. There's this huge long tail of transactions that happen outside of the financial system because the transactions are just too small or insignificant to bother doing the accounting. "Here's my 2 $cents" is a famous expression of an opinion without much value. Yet, it is some value and it is hard to capture that value using existing tools when transaction costs are vastly more expensive than the actual transaction.

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