Page 47 - Payout Magazine Online Volume 8.8

Cryptocurrency and blockchain could be There are also many customized digital
thought of as the next evolutionary progression currencies coming online, and it seems like
of world finance. Cash has been with us for so there is a new one each week. Switzerland-
long that it’s hard to see through to the truth based UBS is experimenting with a “utility
of the matter; that paper or plastic notes, settlement coin,” that aims to replace
and little metal coins have no more intrinsic intermediaries such as clearinghouses which
value than the files stored on a computer as a occupy the processes between the buyers and
sophisticated algorithm. sellers.

When Richard Nixon separated the US Mikhail Shlyapnikov, a farmer in the small
currency from the gold standard, he ushered village of Kolionovo, 80kms outside of Moscow,
in the new era of fiat currency for every nation. started his own cryptocurrency in response to
The dollar would no longer be measured financial institutions requiring 12% interest on
by how much gold was in the coffers, but finances he was seeking to improve his nursery.
instead, would be based on an arbitrary figure Rather than become a slave to the banks,
determined by a consensus of world belief. Mikhail decided to create his own currency.

Despite the media’s love affair with Kolions, the term Mikhail applied to his
demonizing cryptocurrency and exaggerating currency, started off as a paper version, but
its potential security flaws, when compared to a Russian court in 2015 soon outlawed it.
traditional banks it is still widely regarded as a Undeterred, Mikhail turned to cryptocurrency
secure financial system. This is a trend which technologies to create a digital version, and
is likely to continue given the public’s waning in April of 2017, he raised $500,000 during an
confidence in the traditional financial system.
ICO (initial coin offering).
The biggest threat faced by currently You can buy kolions using any other form
entrenched financial systems is the removal of of cryptocurrency or through a process known
the middleman from every transaction. Every as plowing – which boils down to supplying
financial transaction made is based on trust; manual labor to farmers in the area. The value
if you hand over money, you can reasonably
expect to receive a product or service that of kolions now sits at $2 million and is backed
is fair compensation. Banks and payment by a reserve of 500 bitcoins currently worth
approximately $3.7 million.
gateways have long profited from being the
middleman in such transactions.
Before Bitcoin, the term digital meant
unlimited copies, but Bitcoin has effectively
Blockchain has the potential to disrupt the
status quo, as once systems are in place which turned that concept on its head. For the first
can dramatically reduce the cost and speed time, Bitcoin made it possible to own a digital
of a transaction, the underlying encryption product that could not be copied. Finally, bits
technology and straight through payment and bytes on a PC could have real-world value
system will provide a foundation of trust that as an alternative and secure way to trade for
negates the use of a third party financial commodities.
institution.
With governments deciding to implement
Transactional intermediaries are the measures to regulate Bitcoin and other
most at risk in this scenario; by the time your cryptocurrencies rather than outlaw them
Starbuck’s coffee has been paid for with your entirely, and even create versions of their own,
Mastercard more than five intermediaries it appears that cryptocurrencies have become
have become entangled in the transaction, firmly entrenched in the financial world order.
all of which require a processing fee for their While other institutions continue to find new
contribution. ways to use blockchain technology to develop
new financial products and improve existing
Instead of resisting the rising tide of systems, Bitcoin and blockchain are only set to
Bitcoin and cryptocurrency in general, many continue their disruptive influence on the world
financial institutions are racing to integrate the of finance.
technology into more efficient backup systems
and to speed up transactions.

PayOutMagazine 47