A simple example of how blockchain technology can change the world
Why is blockchain technology — the tech behind Bitcoin — so important? Pretend you own your own home, and you want to borrow $20,000 against it. Today you would go to a bank and ask for a loan; your house becomes collateral. (This is commonly known as a second mortgage.) Under this method, if you are still paying your first mortgage — and now you have a second mortgage — you are paying principal and interest to a bank TWICE. That interest is a lot of profit for the bank.
Someday, using blockchain technology, you could instead create a token that represents the value of the equity in your home. Instead of taking a loan from the bank, you make a legal agreement that puts your house on the blockchain (think of it as an open ledger).
Next, you mint your own digital coins based on the token. This connects the listing of your home to the sale of these coins. Their top value would be set by the amount of money you are seeking. You would pay a trusted intermediary (like a bank, but could be an accounting firm or a law office or a new type of business that doesn’t exist today) a one-time fee to put the coins on the market. Once the coins are in the marketplace, all buying and selling of them is on the blockchain, with a record of how the transaction operates. There is no longer a need for a trusted intermediary (a bank) to hold or manage the loan. The coins are free to be bought and sold in public coin markets.
The agreement posted on the blockchain states the title to your home will transfer to your creditors if you don’t pay back your debt. You can’t sell your house without paying back all coin holders — literally buying back the coins.
Instead of interest going to the bank, YOU become the lending agent, and all the value of floating the loan and reaping its benefits accrue to YOU.
Vitalik Buterin, the inventor of the Ethereum project (similar to Bitcoin) once explained the importance of the work he is doing by saying, “Blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” Blockchain technology turns trust into a digital experience that eliminates the middleman; this is why so many people think blockchain and cryptocurrency (the mechanism of using the blockchain) are so revolutionary.