The idea behind Bitcoin is to act as a transparent peer-to-peer (P2P) payment system and, on this, it has had varying degrees of success.
But there is a much more exciting project, also based on blockchain technology, known as Ethereum.
While Bitcoin’s only use is as a payment system, Ethereum dwells on building the infrastructure within which smart contracts can be executed.
A smart contract is code built on blockchain that executes when certain conditions are met.
Smart contracts are nothing new; we interact with them all the time. In their basic form, they are just “if-then” instructions.
A common example usually used to explain this is the analogy of the vending machine.
The machine is programmed to dispense particular products on certain conditions.
If Sh50 gets you a bottle of water, the machine will verify your Sh50, confirm your selection and give you the bottle of water.
A simple coded contract in this machine would be: “If Sh50 is confirmed received, then issue a bottle of water.”
While this example is rather simplistic, at their very core, smart contracts operate on this model.
The only distinction is in the manner in which the contract is verified.
All Ethereum transactions and confirmations are recorded in a decentralised public ledger that can never be tampered with.
While regular contracts will require the intervention of a third party — such as a court of law or a bank due to issues of trust — for Ethereum and blockchain, the contract is the law.
The data is recorded and available to anyone to verify, and so, disputes do not arise.
The Ethereum project is open-source and provides the framework and infrastructure that enables any individual or organisation to write smart contracts and dictate conditions under which they are executed.
Any random person or organisation can launch an Ethereum contract, create a coin (token) and launch an initial coin offering (ICO) to raise money.
That is why there have been a lot of cryptocurrencies springing all over the place.
Ethereum is, basically, a printing press for money; which is why governments and regulators alike have been very skittish about it.
Raising money this way is very cheap and very hard, if not impossible, to regulate.
This is because government bureaucrats are old-fashioned economists and the underlying economics of cryptocurrencies just doesn’t make sense to them.
Why would an intangible line of code with a mundane name as Bitcoin cost $10,000 (Sh1m) (real money) a piece? And why would someone pay for it?
While Bitcoin has established itself as the gold standard, there are 1,400 cryptocurrencies, mostly built on Ethereum. It’s a jungle out there!
But Ethereum was not created just to churn out other cryptocurrencies; there are real and practical world applications for the technology.
Perhaps one that would be dear to Kenyans would be to conduct elections that can not be tampered with.
The electoral body would issue to every eligible voter one token for each elective post (the number of tokens cannot be increased once set in the blockchain).
The voters then cast their ballots by sending the tokens to their favourite candidate’s wallet addresses.
The candidate with the most tokens wins. Also, the results will not have to be kept in any central server and issues of hacking will not arise.
There are other applications in banking (setting and enforcing contracts and payment systems), insurance (settling claims once certain conditions are met) and even supply chain management (sourcing of goods and services and payment of suppliers).
The possibilities are only limited by our imagination.
Kevin Orango is a former banker.
The views expressed in this article are of the authors.