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On Blockchain Technology
Disruption and Importance to Developing Economies
A general discussion.
What it is. What it solves. Relevance to developing economies.
Shane Ninai
Jack Saba
17.03.16
The disruptive potential of the blockchain has been recognised already in developed nations where
largely systems work efficiently. Now transpose this disruption to developing nations and the impact can be
seen to be revolutionary, acting as a catalyst for generational leaps forward in development in all aspects of
industry and government. It creates a system of decentralised trust. Benefits include direct peer-to-peer trade,
cross-border exchange, near instant settlement, low transaction fees, low transaction costs, increased
economic liquidity, increased trust, immutable record keeping, instant accessibility with internet connection to
name a few. Adopting this technology in developing economies particularly will signal forward thinking,
increasing efficiency, transparency and attractiveness for both domestic industry and to foreign investment as
well as promoting good governance. The applications of this technology have not fully been realised yet
although the potential is huge. It is still in its infancy, presenting a special opportunity for entrepreneurs to
build companies to shape the industry and for venture capital investment in these companies. In addition to
using this technology for development which will be inevitable, there is an opportunity to have ownership in the
companies that will populate this space, generating great returns. The blockchain opportunity today is what
the internet was in 1994.
This is a general discussion on what the blockchain is and why it is such a revolutionary technology.
1.0. DEFINITION- What is the blockchain:
The blockchain is a cryptographically secured public ledger of transactions distributed among a large network
of computers without a central authority in chronological order for easy audit. Instead of exchanges occurring
between parties and a third party mediator it occurs in this global network of computers crowdsourcing all
members acting as witness to all transactions collectively replacing the third party. This distributed and
decentralised global peer-to-peer network records all digital events or transactions providing real time
identical updates to all. Assets and ownership are tokenised and assigned value i.e. currency, property, a vote.
Exchanging these tokens represents the secure exchange of value and ownership from peer-to-peer.
Transactions are immutably stored on the blockchain public ledger in blocks. Transactions can only be
validated by an absolute majority consensus of participants in the network. Once a transaction attains network
consensus it is entered into the system and added to a block forever. It can never be altered, copied or
reversedi. Transactions build upon each other chronologically until a block reaches capacity. Then a new block
is created and linked. A distributed, irreversible and incorruptible chain of blocks containing all transactions
ever made. It is completely public and open source for developers.
The technology, software and network run itself, so no central party is needed- participants transact directly
with each other. For the first time in the history of mankind- A completely frictionless decentralised and
distributed peer-to-peer network enabling the secure exchange of assets and value from anywhere in the
world to anyone in the world without the need for a trusted transactional intermediary. Only prerequisite;
internet access. What the internet did for communication and the exchange of information, the blockchain will
do for global commerce, proof of ownership and value exchange. It is the greatest and most important IT
innovation of our age.
Figure 1: How a blockchain works using the example of sending bitcoins- global decentralised currency 1 bitcoin = USD$412.41
2.0: SIGNIFICANCE: Why is the blockchain disruptive:
It has solved the issue of trust for digital global and domestic trade and commerce. Everyone can send and
receive assets of value securely over the internet directly peer-to-peer. Like emailing money, or registering and
transferring the title to a house or placing a vote. It will revolutionise e-commerce and disrupt every major
industry in the world. The technology is still in its infancy, only 7 years old. Like the internet in 1994, there is
immense opportunity for entrepreneurs and investors alike for blockchain in 2016.
Any industry involving the payment of fees and/or the aggregation of customer data into a centralised ledger
system controlled exclusively by a trusted third party as prerequisites to trade and participation will be
completely disrupted by the blockchain. Presenting opportunity for institutions and governments to
participate in this innovation and not be left behind.
3.0 PROBLEM: The problems blockchain technology solves in the current system.
3.1 TRUST- The Byzantine Generals Problem (BGP):
A direct peer-to-peer exchange is difficult given distance and/or lack of trust between parties. When
transactions between parties are made over greater distances the presence of a centralised mutually trusted
third party is necessary. Each party otherwise does not know, trust or have the time or direct access to assess
the others fidelity to the agreement and capacity to execute.
Today’s system requires a trusted third party (or multiple intermediaries) to inspect and hold the consideration
and information from each party in escrow until the validity of each party can be confirmed on both sides
before the third party approves the completion of the exchange. The third party takes a fee for this service.
This leads to silos, delays, high charges and relative inefficiency.
Figure 2: Current system relying on a network of centralised third parties that stands to be disrupted i.e. SWIFT banking.
Party A Party B Trusted
3rd Party
Other
intermediaries
Other
intermediaries
3.2 BLOCKCHAIN DISRUPTION: Central v Decentralised and Distributed Ledger:
Central Ledger: Trusted third parties aggregate all data and information from all members of the
public who wish to participate in trade and records it on a private centralised ledger which only they can
access and control. Third parties levy fees and conditions to those who wish to register and transact in the
system. The public recognises them as trustworthy and their records as authority. Membership in this system
is a perquisite to participating in trade and commerce. This leaves room for corruption and inefficiency by
those with control over this central ledger to misuse data and charges. Not joining this centralised system
means non participation i.e. unbanked, uninsured, unregistered voters, unregistered property title holders.
This fundamental system has not been disrupted for hundreds of years.
Today this third party function can often involve more than one “middle-man” to facilitate international and
cross-institutional trade i.e. SWIFT banking. Examples include banking, election registration, governance,
national identification systems, land and property title registry, and contracts.
Blockchain and the Distributed Ledger: The blockchain’s decentralised, distributed ledger
technology means the single third party is replaced by consensus in the global network of users.
Crowdsourcing their presence and computing power to act as a collective third party to mediate transactions.
The network collectively replaces the centralised intermediary. Anyone can view the ledger and join the
network acting as witnesses policing transactions establishing ownership and validation. It is completely peer-
to-peer trade. Transactions are only approved when the majority consensus of the global network is achieved.
Successful transactions are hashed into blocks. Creating a public and immutable record of transactions- the
blockchain. It is now possible to distribute this ledger to everyone on the network. A re-distribution of power.
Figure 3: Centralised v (Decentralised and Distributed)
Figure 4: Transactions occur peer-to-peer from Party A to Party B on the blockchain with the computers on the
decentralised, distributed network acting as witnesses authorising and recording them upon majority network
consensus. All transactions are public with identities encrypted.
Party A Party B Blockchain
3.3 PROOF OF OWNERSHIP: Fraud and Counterfeit. The Double Spend Problem:
The blockchain record is an incorruptible proof of ownership. You cannot fake ownership. Double-
spending is usually defined as the result of successfully spending money more than once. This definition can be
extended to exchanging anything of value more than once by way of fraud or counterfeit. Trusted third parties
are there to mitigate against this risk occurring although they can also be guilty of tampering with information
becoming part of the problem in cases of corruption.
Unlike exchanging information and communication, direct peer-to-peer commerce was not possible
until now. Direct exchange of assets of value was not possible over the internet as there was no way to protect
against the risk of arbitrarily duplicating records of ownership and attaching them to emails and sending them
to multiple parties. Hence the need for third parties like banks, visa and mastercard in e-commerce. The
blockchain will revolutionise e-commerce. You can now bypass the need to establish legacy e-commerce
infrastructure onboarding a network of middle men clearance houses and leapfrog directly into blockchain.
You cannot defraud the blockchain. The blockchain solves this problem and prevents against double spending
by verifying each transaction and record is genuine and added to the blockchain to ensure that the inputs for
the transaction had not previously already been spent. This is done through a complex cryptographic algorithm
that records transactions as proof of existence in immutable chronological order. There is no way to double
spend and there are no charge backs. Assets are simply tokenised and securely recorded and traded on the
blockchain.
Figure 5 A chain of blocks: Transactions are chronologically and securely recorded and grouped in blocks on the public ledger . They cannot
be altered they only move forward building on top of each other. Once an asset is recorded on the blockchain all information regarding
ownership and value are securely immutably stored and distributed amongst the network. Transaction history is easily auditable and
impossible to counterfeit or reverse.
4.0 THE LEAPFROG PRINCIPLE: Why it is so important to developing economies like PNG.
The main value proposition of blockchain is that it enables developing nations to leapfrog the need to establish
and or update third party infrastructure and clearance houses as a prerequisite to efficient trade i.e. e-
commerce, internet banking, paypal. This value proposition is particularly of importance to developing nations
where issues of trust, fraud and over-reliance on centralised third parties leads to inefficiencies, lack of
transparency, accountability and halted liquidity and efficiency in the economy and government meaning slow,
opaque growth. While the technology has been developed and first adopted in developed countries its real
impact will be in emerging nations. Developed nations already have high liquidity in their economies. Systems
run efficiently, their population largely trusts the systems and there is more transparency. In developing
nations this is not the case. And this is where the most opportunity for disruption will occur. Blockchain can
serve as a tool to provide generational leaps for underserved communities from financial inclusion to
transparent property registration and increased transparency in voting and elections.
It allows transparent, friction-less exchange (i.e. domestic and cross border transactions), removes the need
for third party institutions, promises lower fees, lower transaction risk, near instant settlement and direct
peer-to-peer exchange and stores this in a secure immutable record for all to see. Drastically improves liquidity
within an economy and for cross-border exchange. Applications can be extended to smart contracts. Using the
blockchain, agreements can be automatically triggered and executed once clauses have been programmed in
using an- if this, then that programming logic. Contracts executed without middlemen like lawyers decreasing
bureaucracy.
Block 1
Recorded
transactions
Block 2
Recorded
transactions
s
Block x
Recorded
transaction
s
The blockchain can revolutionise services both in government and the private sector. It is an incorruptible
ledger of blocks of data, and that data can be records of literally anything. These core principles can be applied
to any major industry.
The blockchain has the potential to help governments to collect taxes, deliver benefits, issue passports, record
land registries, assure the supply chain of goods and generally ensure the integrity of government records and
services. It can increase transparency, liquidity in the economy and it’s trust building capacity means that
geographies that adopt it become more attractive commercially both domestically and as investment
destinations for foreign companies as well as being seen as forward thinking.
Currently small countries with techno-savvy administrations like Estonia are already experimenting with
blockchain technology. The Government of Honduras has started using it to record land and property
registration and throughout Africa initiatives are being investigated and implemented.
This is the single biggest technological innovation of our age since the internet and offers developing nations a
unique chance to drastically improve and leapfrog into greater levels of economic development. And also
promises a special opportunity to enterprising parties to own equity shares in promising startups populating
the space by participating in venture capital. Financing these new companies and entrepreneurs via a cross-
border venture capital initiative with companies in Silicon Valley.
i *For a transaction to be corrupted it would necessitate a 51% attack where an attacker would have to overpower 51% of the entire network to change the record of that transaction in
their favour. This requires excessive amounts of supercomputing capacity and is highly unlikely to ever happen
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