Paul Mampilly, a leading expert on financial technology, believes that blockchain is a revolutionary technology that will change finance, governance, and everyday life. Mampilly first encountered blockchain in 2011 when he was browsing the Mt. Gox website. Mt. Gox is notorious for being hacked during the early years of bitcoin. Mampilly did not purchase bitcoin through Mt. Gox due to the vulnerabilities of the Mt. Gox exchange, but he was inspired to learn about the blockchain applications used in bitcoin, ethereum, and other respected cryptocurrencies.
The Ins and Outs of Blockchain
The blockchain is a system of distributed computing that allows a large set of independent nodes, or CPUs, to be employed for common computational tasks. This technology is often used to anonymously complete a transaction without any data passing through a common server. This method is known as a decentralized transaction. The blockchain offers immutable records, so theft and data manipulation is difficult. Hacking is also improbable. To overcome the democratized decentralization of the blockchain, a single node must have enough processing power to overcome 50 percent of the nodes involved in the transaction. It is possible that supercomputers may be used to exploit this vulnerability, but it is improbable that hackers have access to such extensive resources.
Applications of the Blockchain
As an investor and technology enthusiast, Paul Mampilly is interested in discovering what blockchain meant for the world of finance. Fintech, or financial technology, has contributed to dramatic improvements in human well-being, so blockchain may affect all of us. While Mampilly initially focused on the financial applications of blockchain, he quickly learned that it can be applied to government services, business, social media, scientific research, and other fields. Here are some of the most important applications of blockchain technology.
The most obvious application of blockchain is in the financial sector. By exploiting decentralized computing resources, financial institutions and individuals can quickly complete transactions at low costs. While early applications of blockchain were limited to cryptocurrencies, mainstream institutions can benefit from the low-cost transactions of decentralized computing. Numerous large financial institutions have realized the benefits of blockchain. Goldman Sachs has heavily invested into blockchain research.
The primary benefits of blockchain transactions are speed, decentralization, and low costs. Through decentralization, financial institutions can achieve the original promises of cloud computing. Paul Mampilly was initially optimistic about cloud computing because it seemed that the technology would offer the decentralized benefits of the blockchain. However, cloud computing did not offer decentralization. Instead, all data transactions were relocated to one or several third-party services. Cloud computing offered data outsourcing when many people wanted decentralization. The blockchain corrects this problem.
Blockchain technology is often seen as the next step in reducing transaction costs. By adopting the blockchain, companies and individuals can transfer data and complete financial transactions at lower costs and with greater efficiency. The blockchain can also give small companies the resources necessary to compete with larger firms. Lower costs increase economic efficiency and improve markets. The world may be entering a golden age of fintech.
While the fintech applications of the blockchain are impressive, the new technology may solve other problems in society. Consider the problem of identity theft. Identity theft occurs when the ownership of financial information or resources cannot be confirmed. Blockchain reduces the likelihood of this kind of theft. Paul Mampilly stresses the importance of the blockchain’s immutable record system. Since ownership of each resource is clearly defined by the blockchain, theft cannot occur. The lack of editing privileges ensures that a third-party cannot assume the identity of the person who owns the resource. Transactions of ownership rights can occur via smart contracts if an individual truly wants to trade a deed or sensitive information.
The blockchain may also be used to improve government services in both developing countries and advanced economies. The blockchain could be used to reduce the corruption that occurs when federal grants are diverted to local officials in the United States.
Consider the example of Title I grants. Title I of the Elementary and Secondary Education Act provides funding for schools in low-income communities. Unfortunately, the distribution of these funds is largely determined by the discretion of local leaders. Dr. Nora Gordon of the Brookings Institution determined that up to 90 percent of Title I funds did not reach the intended school districts in a large sample.
This problem of fund leakage in fiscal federalism can be addressed by blockchain applications. With a blockchain system, funds could be directly injected into the school systems without bureaucrats skimming dollars at each stage of the federal system. If implemented properly, a blockchain system can reduce the misallocation of funds while improving the public’s confidence in the government.
Blockchain applications may also be applied broadly to the day-to-day affairs of the government. With the immutable distributed ledgers of the blockchain, transactions are visible and impossible to conceal. This ensures that acts of corruption are public. With increased government transparency, public spending could be efficiently allocated to legislated projects.
Social Media Reputation
Distributed ledgers may also be effective for solving some of the problems associated with social media. On Twitter, Facebook, Reddit, and other social media platforms, many users act rudely because their reputation is not on the line. With the blockchain, users can have a single online identity that has a reputation score based on their online behaviors. This blockchain feature may reduce hate speech, trolling, and other negative behaviors on the Internet.
It is clear that blockchain can fix plenty of problems in society. Paul Mampilly is confident that blockchain applications will continue to grow, so he has selected several Fintech stocks that use distributed ledgers. IBM, Hitachi, and Daimler AG are among his top picks. Investors who prefer broad exposure to blockchain companies can invest in the Global X FinTech ETF.
Paul Mampilly on ePodcast Network: http://epodcastnetwork.com/paul-mampilly-on-trading-wall-street-for-main-street/