I’ve always considered blockchains and crypto to be buzzwords. I never really understood what they were or the value they offered to our society. Recently, I’ve spent more time learning about blockchains and crypto—and they’re powerful.

They will reduce global barriers to commerce, increase financial accessibility, reduce our dependence on intermediaries, increase social trust, increase online security, and place individuals in charge of their own data.

These are big claims. My goal is to help you see the same potential I see in blockchains by the end of this article.

Before we start, we need to understand how digital transactions work since some of the earliest and most popular blockchains were designed to replace our outdated and inefficient financial systems.

When I hand you a $5 bill for a cup of coffee, the money directly goes from me to you. I don’t have to give you my personal information for the transaction, and it's irreversible.

We both consider that a fair and secure transaction since the $5 bill is issued by the United States of America, and we both believe in the government’s power to maintain and support a fair society.

But what if I wanted to pay $5 to my friend across the country or if I wanted to buy a Rolex for $5k (and I don’t have that much cash on hand)? That’s where digital transactions come in—and the third parties that facilitate these transactions.

We rely on third parties, like banks and PayPal, to serve as bookkeepers to maintain our personal balance (how much others owe us or how much we owe others). By relying on a bank, we don’t own our money. When we deposit $100 into our bank account, the bank lends out our money to others and charges interest. Banks consider our deposits as liabilities and give us almost nothing in return—while keeping the money they earned from our money.

Without intermediaries in our current financial system, we would have to keep accounts on our own. Let’s say I ordered a t-shirt from an online retailer. I can email him a confirmation that I owe him $20 and request for my T-shirt to be shipped to my house. To the retailer, my email is useless since he doesn’t trust me and can’t pay others with my email. Even if he trusted me and was willing to make an exception, he would have to wait for me to settle the transaction in person—which reintroduces the limitations of cash.

Instead, let’s say I created a Word document with the words, “This document is worth $20." For the sake of this example, let’s assume the online retailer truly believes that the document is worth $20 and can use it to pay others. When I purchase the t-shirt, I email him this Word document in exchange. After the purchase, I can still keep the Word document and use it to purchase other things. Even if I were to fairly delete the Word document off my device after the purchase, the online retailer may not delete the Word document when he sends it to someone else as payment. This is the double spend problem—and it’s another reason we rely on third parties to take care of the bookkeeping.

When we transact digitally, we rely on banks and intermediaries to ensure everyone is acting fairly. There are three forms of digital transactions:

1. Same Bank Transactions

2. Different Bank Transactions

3. International Bank Transactions

Let’s say my roommate and I have accounts at the same bank. I send $20 from my bank account to my roommate’s bank account to pay him back for last night’s dinner. The bank simply subtracts $20 from my balance and adds $20 to my roommate’s balance. For the sake of simplicity, you can think of the bank as having a giant spreadsheet (of liabilities). One column lists the account owners at their bank and another column lists each of their respective balances. Since this is just adding and subtracting values in rows within the same spreadsheet, this transaction is usually free and fast.

Sticking with the same example, let’s say my roommate and I have accounts at different banks. I have a bank account at Central City Bank and my roommate has an account at Gotham City Bank. When I send him the $20 for dinner, the problem is that Central City Bank will now owe me $20 less while Gotham City Bank will owe my roommate $20 more. Gotham City Bank is worse off in this situation since they aren’t being sent the $20 that they can lend out (and make money off) and return back to my roommate when he wants to use it.

This problem could be solved if Central City Bank just had one of their employees drive over to Gotham City Bank and drop off the $20. But this would be a costly and long transaction. Instead, banks perform the digital equivalent through correspondent bank accounts and central bank accounts.

A correspondent bank account is basically a bank having accounts at other banks. Let’s say Central City Bank had an account with Gotham City Bank. When I wanted to send $20 to my roommate (who banks at Gotham City Bank), Central City Bank would just initiate a $20 transfer from their account at Gotham City Bank to my roommate’s account at Gotham City Bank (and subtract $20 from my account at Central City Bank).

This essentially turns into a book transfer. A lot of banks do this today and you can just search up “{Your Bank Name} Correspondent Bank Accounts” to get a list of banks that your bank has accounts with. The problem with this method is that the correspondent bank could go bankrupt (and you lose your funds), your bank would have to create accounts with every other bank in the world, and your bank would have to maintain a positive balance at each correspondent bank account (costly since banks aren’t making much money off of that).

Instead, banks make just one account with a central bank, which acts as the bank of banks. The main idea is that the payments between banks are paid from their accounts in the central bank either at the end of the day through Deferred Net Settlement Systems (DNS) or in real-time for each transaction through Real-Time Gross Settlement Systems (RTGS). Each of these systems has its pros and cons.

But only some banks that meet certain requirements are allowed to have an account at a central bank. So some of the banks that are eligible to have an account at the central bank act as clearing banks for smaller banks (that don’t meet the criteria) or foreign banks. Clearing banks basically serve as a central bank for these banks that aren’t able to have accounts with the central bank and charge fees for their service (higher fees for riskier clients).

We have a World Bank, so they would serve as a central bank, right? That would make things a bit simpler for international transactions, but the World Bank is the world’s bank in name only. We need to rely on a more inefficient system for international bank transfers.

There are two forms of international transactions: single-currency transactions and different-currency transactions.

First, single currency transactions are processed through previously mentioned correspondent bank accounts (banks having bank accounts at other banks). Let’s say I have a cousin in the UK, and I want to send him £100 (British Pound Sterling) to his local UK bank account for his birthday. Usually, there are not a lot of reasons why someone would have a different currency stored via their local bank. In this example, let’s say my bank had a promotion a few months earlier promising a higher yearly yield on my money if I stored British Pound Sterling with them. Even though I’m holding the British Pound Sterling with my local bank in the US, it’s actually under my local bank’s account at a local UK bank (a correspondent bank account).

When I send my cousin £100 (British Pound Sterling) for his birthday, the money’s actually moving through the UK’s RTGs system. My bank decreases my British Pound Sterling balance by £100 in their “spreadsheet” and sends £100 from their correspondent bank account at a local UK bank to my cousin’s local bank account—which is eventually cleared by the UK’s Central Bank.

Next, different currency transactions happen in a very similar way to single currency transactions. To be clear, this transaction is referring to sending a currency that is not the native currency to either the sender or recipient. Continuing with the same example, let’s say I wanted to send ₹8,261 to my cousin in the UK for his birthday. For this example, let’s assume that both my cousin and I have foreign currency bank accounts at our respective banks. Since neither banks have licenses to operate in India, they will have correspondent bank accounts in India. If both my bank and my cousin’s bank have the same correspondent bank, it’s cleared as a book transfer. If both our banks have correspondent accounts at different banks, then it’s cleared through India’s Central Bank.

But smaller banks in less regulated environments won’t have access to international relationships. Larger banks may not allow smaller banks in less regulated environments to have correspondent bank accounts with them since they are risky. Instead, these smaller banks have to have a bank account at a bank that already has a correspondent bank account at a larger bank in a different country. These banks that already have relationships with international banks (via correspondent accounts) may charge the smaller, less-regulated banks higher fees since they pose a higher risk and require more effort. This essentially leads to economic exclusion since these smaller, less regulated banks are typically from developing countries, and their citizens don’t have access to the same global economy as those of other more developed countries.

Some of the earliest blockchains, like Bitcoin’s Blockchain, were created to eliminate the inefficiencies of digital transactions. As I’ve walked you through some of the most common forms of digital transactions, I hope you were able to see how different banks and institutions have their own “spreadsheets”. For the sake of simplicity, I’ve referred to them as spreadsheets (and will continue to do so in this article), but you can also think of them as databases or ledgers to record transactions. The transaction data of each bank is siloed and reconciling each bank’s “spreadsheet” takes a lot of effort since the validity and security of the data need to be maintained. That’s why our transactions today have fees associated with them.

But imagine if the entire world ran on one “spreadsheet” — a single source of truth. We wouldn’t have to spend time, money, and effort reconciling siloed “spreadsheets”. That’s what the blockchain does at its core. It maintains security (arguably more than conventional institutions) through cryptography and a decentralized network of people who validate transactions to be entered into the “spreadsheet”.

The beauty of the blockchain is that anyone can join the network and start validating transactions, so it isn’t controlled by a centralized system. It’s also transparent since the transactions on the “spreadsheet” are visible to anyone in real time. Yet, it still maintains a high level of privacy and security since the only data that’s visible is the sender and receiver’s public address. I don’t want to get too much into the details of how a blockchain works (I’ll save that for another article), but think of a public address as a username for an individual. Instead of names and other personal details being recorded on the public blockchain, the only thing that’s recorded is this public address.

In a bank’s spreadsheet, a normal transaction may be recorded as below (simplified for the explanation; the main idea is that your personal info is recorded):

Bob sends Joe $20

In a blockchain like that of Ethereum or Bitcoin, a transaction would be recorded as below:

0xCC6DDD79D1BA2F20DA11D0A6D1B45C77D5367F3E sends 0xD8F3FCA7CDBB397AAEBD6F1E28A1B2F6A5A776AC $20.

Using the blockchain, all transactions would be as simple as a book transfer. When you create a transaction on the blockchain, it ensures that your balance is greater than the amount you’re sending and simply decreases the amount from your balance on the ledger and increases the recipient’s balance on the ledger.

The value that’s being transferred is either the native coin issued on the blockchain (Ethereum for Ethereum’s blockchain or Bitcoin for its blockchain) or a token built on top of the blockchain (like USDC).

Now, imagine if this public, decentralized database can store any data—not just transaction data. You can encrypt and store messages, files, and anything else you would store in a database. This means you can build web and mobile applications that connect to this universal, decentralized, and secure database. Ethereum’s blockchain makes this possible, while Bitcoin’s blockchain is more oriented toward transactions.

On Ethereum’s blockchain, you can also deploy smart contracts, which are self-executable code that outline a certain amount of conditions that need to be met for an action to be automatically executed by the code. Smart contracts are transparent (since their code is visible on a public blockchain), decentralized, and immutable (so no one can tamper with the code). Based on the code, a smart contract can send funds (either the native coin or tokens) to a certain party when conditions specified in the contract are met, without relying on a third party.

A blockchain is a peer-to-peer network that allows anyone who joins the network to be able to verify data. Each blockchain network has certain incentives and consequences for its validators that make any fraudulent verifications nearly impossible. A blockchain network provides its own cryptocurrency to validators that help verify a transaction. The more validators in a network, the faster and more democratized the network will be. Investing in a cryptocurrency, like Ethereum, Bitcoin, or Solana, is you betting on the power of the blockchain to create a more decentralized, transparent, and equitable world.

Each blockchain network has certain incentives and consequences for its validators that make any fraudulent verifications nearly impossible. A blockchain network provides its own cryptocurrency to validators that help verify a transaction. The more validators in a network, the faster and more democratized the network will be. Investing in a cryptocurrency, like Ethereum, Bitcoin, or Solana, is you betting on the power of the blockchain to create a more decentralized, transparent, and equitable world.

If you want to learn more about the details of how people verify data, transact, and develop cool things like smart contracts on blockchains, here’s a great Medium article and YouTube video to get you started. I’ll be writing a more detailed article that explains how a blockchain works, so stay tuned for that!

When engaging in an activity with another party where there is at least some level of risk if things go wrong, we often employ an intermediary to mitigate the risk while still providing us with value. In return, these intermediaries take a certain cut out of the value that they help create.

Let’s say you’re in the process of buying a house. You’re interested in a house, and you want to close immediately. To ensure the seller doesn’t back out or change the deal’s terms, you provide an earnest money deposit. This is basically money that you put down before closing to show the seller that you’re committed.

If you directly give the seller the earnest money deposit, there’s a chance that the seller may run off with your deposit without transferring the asset to your name. To avoid this risk, we employ escrow agents that serve as a neutral party between both the buyer and seller. When you provide the earnest money deposit, you would send it to the escrow agent (e.g. mortgage lender). The seller would also transfer the asset to the escrow agent. Now, the escrow agent would provide the earnest money deposit to the seller and the asset to the buyer. There is a very low chance the escrow agent will run off with both the asset and deposit since these escrow agents are typically regulated or are large and reputable enough that it will severely diminish their reputation. Escrow agents typically make far more money serving as third parties for several types of transactions (not just real-estate) than running off with assets involved in a single transaction. For the trust and security that escrow agents provide, they take a cut out of the transaction or a set fee.

Instead, you can deploy a smart contract that serves the same purpose as the middleman. The contract can be programmed to only release the ownership of the asset and the deposit once both parties provide the agreed-upon items. Or the contract can also be programmed to a different set of rules agreed-upon by both parties. Since these smart contracts are self-executable, you do not need an escrow agent to facilitate the trade. This increases the efficiency and speed of the process, without giving a cut or fee to the escrow agent. Smart contracts increase the level of trust when incentives aren’t always aligned without the need for intermediaries.

Not all asset classes are made equal. Several asset classes, like art and real estate, are only accessible to higher-income classes. Everyone else can’t access the relatively stable, high returns of these asset classes. But today, these exclusive assets are tokenized on the blockchain, which allows people to own a fraction of the asset. For example, Lofty.ai allows everyday people to invest and own a fraction of rental properties for as low as $50 and receive daily rental income. Properties are divided into tokens that can be traded at any time, which offers higher liquidity and fractional ownership of a once inaccessible asset class.

This was once impossible since:

1. Requires strangers to trust other strangers and co-own a property (e.g. risk of someone pocketing all the rent and running away)

2. Hard to make property decisions fairly (e.g. someone can end up dominating the decisions)

3. Real estate has always been an illiquid asset (e.g. if you didn’t like what’s going on with your investment, you couldn’t exit)

Here’s how Lofty solves these problems:

1. Fractional ownership is represented by the number of tokens someone owns, which is recorded on an immutable, transparent ledger (in this case, Algorand). Rent is distributed by a smart contract based on the number of tokens someone owns in a property

2. When you invest in a property on Lofty, you join a Decentralized Autonomous Organization (aka a DAO). A DAO is like a digital community that runs on a blockchain and is managed by a smart contract. Members in a DAO are allocated tokens that grant them voting power when decisions are made. Members can also propose decisions to be voted on by the DAO. Your property tokens on Lofty allow you to vote on property decisions (e.g. vacating a tenant or renovating a bathroom). Your vote’s power is proportional to the number of tokens you own in the property (one person can’t own more than 15% of a property).

3. When you want to sell your share of a property, you can simply sell your tokens to a buyer on Lofty’s secondary market. The buyer will join the DAO since they’ve purchased the tokens from you.

Lofty simplifies all the voting decisions as part of the DAO via emails. When a proposition is put to vote, all property token owners are emailed and are able to vote via the email itself. The beauty of Lofty is that it’s designed for everyday people who care more about value than the underlying technology. Platforms like Lofty are how the next billion people will enter the Web3 ecosystem and experience its value.

We’ve always been able to read and write data on the internet for a while now. But for the first time, blockchains allow us to own things online. For example, if you were to create digital art and only sell it to 5 people, those 5 people can copy the .png or .svg file and send it to 5 other people each. This is where we encounter the double-spend problem again.

Instead, if you were to create digital art and create a non-fungible token (aka NFT), you can issue 5 of these NFTs on the Ethereum blockchain. When someone wants to purchase it, they can mint it at the price you specified. When they purchase it, the money is automatically transferred to your Ethereum account. On the Ethereum blockchain, the ownership of the NFT is specified in the public ledger. Even if someone were to take a screenshot of the NFT, they wouldn’t own the NFT since it isn’t recorded on the immutable ledger (so it won’t be legit). If the owner wants to sell your NFT in a secondary market, the ownership is transferred to the new buyer, and the NFT is recorded under the account of the new buyer.

Now, imagine if songs, articles, books, and concert tickets were NFTs. You can digitally own these pieces of art and better support the creators. If the creator is rising in popularity, you can sell the NFT for a higher price than you purchased it for and make a profit. Platforms like song.xyz and mirror.xyz are building a creator-first economy that creates a more personal connection between the consumer and the artist.

You can also own your own data on the internet. Right now, your Instagram posts, emails, purchase histories, and a lot more are owned by large corporations. Sure, you can access this data when you log in to your account. But the data is really controlled by large corporations, like Meta. Companies like Meta sell your data, may get hacked, or one day may just shut down. In all these cases, you either lose your data or are being ripped off since someone is benefiting off of your valuable data without your full knowledge and you getting a share of it.

It all goes back to who owns the database. Your data associated with your Instagram account is owned by Meta. They get to choose what to do with it for the most part. A blockchain, like Ethereum, isn’t owned by any single entity. It’s maintained by anyone who wishes to join the network to validate transactions and earn its native coin in return. In other words, it’s the people’s database, so each person on a given blockchain gets to choose what they do with their data. They can only share their data with others if they choose to and can monetize it as well.

One of the biggest problems we encountered in our digital transaction examples was that each bank had its own database so reconciling these siloed databases made the process inefficient. But this problem isn’t unique to our financial system, it’s common in healthcare, real estate, and supply chain management.

Recently, IBM has developed its own private blockchain for supply chain management. IBM has partnered with Walmart to increase food transparency for the end user. For example, when you purchase lettuce at Walmart, it’s very difficult for you to figure out where the lettuce is from, what places it’s traveled through, and how it’s been produced. It’s also hard for the staff at the grocery section to figure out which batches of lettuce have been contaminated with E. coli or Salmonella.

The food system is relatively complex (like most supply chains) with farmers, processors, and distributors. Each segment of this supply chain tracks traceability data using its own systems that don’t speak to one another.

With IBM’s private blockchain, farmers, processors, and distributors can enter relevant data into one database that’s easily accessible to each segment of the supply chain, while maintaining security and increasing efficiency. Since there’s one single source of truth, consumers and grocery staff can view traceability data instantly.

Here are some other benefits of IBM’s private blockchain for supply chain management:

1. Handle unexpected events better: If one thing goes wrong, a domino effect follows. By programming logic in smart contracts, a set of actions will automatically be executed once the first mishap happens.

   For example, let’s say a truck is moving a batch of 1,000 bananas from a farm to a processing center. The truck is outfitted with IoT devices that continuously track temperature and humidity and record this data on IBM’s private blockchain. For over an hour of the transportation, the truck was at 100° Fahrenheit.

   Let’s say you’ve programmed your smart contract to notify the processor to disregard any shipment of bananas over 80° Fahrenheit for over an hour or more (since there’s a high chance it’s spoiled). Now, the processor doesn’t have to waste time opening the shipment, evaluating it, and contacting the other parties in the supply chain to figure out what to do next.

2. Onboard new suppliers faster: Vetting new suppliers takes a long time and is a lot of work. By having a transparent account of a potential supplier’s details on the IBM blockchain, onboarding times are much faster since they have a clearer picture of the supplier’s history.

Blockchains are creating a more equitable and transparent world. My goal with this article was to show that blockchains are more than just the daily percent increases or decreases in the price of Bitcoin or Ethereum that we see on the news. They have a lot of insanely cool and impactful applications. Now, I hope that you too can see this potential.

There’s still a few more parts to fit in for the Web3 ecosystem to be more mainstream, but I think we’re very close to this inflection point.

Every technological advancement was dismissed as a toy at its start, but once the right pieces fit in, the world will never be the same.