Wednesday, February 01, 2017 / Perth Australia / By Niekie Jooste
In this edition of "The WelderDestiny Compass":
If machines replace us all, then surely we will just end up homeless and starving to death! In our quest to understand if our future society will become utopian or dystopian, we started looking at what money is, and how this is different to value. This week we look at how money flows through society, and where value is captured.
As an associated technology, we discuss Bitcoin and blockchain. The Blockchain is the underlying enabling technology that makes bitcoin work. If you think that blockchain technology is only applicable to cryptocurrencies, you would be wrong. It has huge applicability to many areas of our lives. We will discuss how it could impact the world of the Welder.
If you would like to add your ideas to this week’s discussion, then please send me an e-mail with your ideas, (Send your e-mails to: firstname.lastname@example.org) or complete the comment form on the page below.
Now let's get stuck into this week’s topics...
While the concept of “trickle-down economics” has taken hold since the time when Ronald Reagan was the American president, economies have always worked exactly the other way round. Value is added by lower economic classes, which then trickles up the socio-economic pyramid.
The money that reaches the top of the socio-economic pyramid is then exchanged for “investment assets” such as property or company stocks.
Vilfredo Pareto showed that as a general rule, 80% of wealth (not money) ends up in the hands of 20% of the population.
Businesses are the primary mechanism for recycling money down to the bottom of the socio-economic pyramid. In particular, jobs provided by the businesses pump the money down to the lowest socio-economic levels. This money is what is required for people to survive, as they spend it on their needs and wants, and re-starts the cycle of trickling back up to the top of the pyramid where the money can again be changed into wealth by the “capitalists”.
When most “jobs” in big business have been replaced by machines, then the mechanism whereby big business pumps money to the bottom of the socio-economic pyramid through employment starts losing its prominence. The only solution is that people lower on the socio-economic pyramid are forced to become “solopreneurs”. In the future, you will need to own your own job, rather than relying on a single employer to look after you.
Do you have the skills necessary to thrive in the solopreneur economy?
In the interest of brevity, I have not gone into details regarding the economic principles discussed, but if you are interested in a more detailed description, please click here…
This discussion on money flows through the economy
brings us to our next topic, which is cryptocurrencies and blockchain technology.
The best-known cryptocurrency is bitcoin. Bitcoin was created in October 2008, when the “inventor” published the invention. It was implemented in January 2009. Bitcoin has all the attributes of a gold based currency system, excepting that it is electronic in form, rather than physical.
Electronic money is not new. Most of our own money is just an electronic entry on the computers of financial institutions. The difference with bitcoin is that payment can be made between individuals in an electronic form, without any financial institution being involved. It is like handing over a piece of gold as payment for a good or service. As with gold, you do not need a bank to be involved to settle the transaction.
The technology that allows this “peer-to-peer” transaction to take place is called the “blockchain”. The way this works is that the “wallet” of the person handing over the bitcoin sends the information regarding the transaction to a multitude of servers on the internet. The wallet of the person receiving the bitcoin also sends the information of the transaction. Once the servers match the two sides of the transaction, and confirm that all the information “ties-up”, then the transaction is finalized by being recorded. The record is added to an ever-increasing chain of such records. Each transaction and its associated information is recorded as a “block” within this chain of transactions. The mechanism used to make it part of the “blockchain”, is of such a nature that it cannot be subsequently removed without detection.
The bitcoin system is also structured in such a way that there is a natural limit to the number of bitcoins that can be created (“mined”). Once this limit is reached, there will be no more bitcoins created ever! If bitcoin was used as the sole international currency and all other currencies were withdrawn, then we see that over time, as economies grow, there will need to be a natural deflation. This may or may not be a problem, depending on where you stand on economic theory and debt.
A lot of people just cannot get comfortable with the idea of such “electronic money”, but the concept of the money being electronic is actually not the difficult part. The difficult part is grasping why anybody would accept bitcoin in exchange for something of real value. The difference between “normal money” (which also has no value) and bitcoin is that national currencies have been legislated as “legal tender”. In short, you may not refuse payment in legal tender when it is offered in exchange for a good or service or settlement of a debt. The government also requires you to pay your taxes in the legal tender, so you basically have little choice in the matter.
Obviously, governments are nervous of the popularising of bitcoin, but they also like all the advantages of these cryptocurrencies. The main disadvantage is that the government does not control the bitcoin currency. Most of the major central banks are in the process of developing their own cryptocurrencies. The main difference of such “national cryptocurrencies” is that the central banks will be the parties that “keep the ledger”. They will also be able to increase the amounts of their own cryptocurrencies, as they would like. They would also be able to structure the system in such a way that the parties making the transactions are not anonymous.
I therefore believe that the issuing of legal tender cryptocurrencies is just a matter of time. What will happen to bitcoin at that point is anybody’s guess, as governments may effectively criminalise the use of bitcoin. This will probably be “sold” as being necessary to prevent crime and terrorism.
What flows out of this cryptocurrency movement is that the blockchain mechanism can actually be used to record any “durable” transactions. As an example, the transfer of ownership of property can be recorded by use of a similar blockchain technology. If this happens, how many lawyers and conveyancing people will be left jobless? How efficient will a property sale transaction become? Will it take hours rather than months to settle?
If we look at the world of the Welder, and we ask what durable transactions are there that needs to be recorded, and retained for record?
The first one that comes to mind is material control for materials used in critical applications. Being able to record the flow of materials all the way from the mill to the finished product, will be a huge boon for the engineering industry in general. If it becomes clear that a certain batch of welding electrodes had deficiencies, it would theoretically be possible to trace them down all the way to the end products in which they were used.
There are also a lot of welded products that need to be “registered” for safety reasons. Think of pressure vessels or airplanes. Instead of the myriad of local registers kept by state or national regulators, a central blockchain of pressure vessels (or airplanes) could be kept, so that their origins and movements can be captured and stored on an ongoing basis.
By how much will regulators reduce their employee numbers when this technology takes hold? How much safer would industry be if the records of such products are totally transparent and essentially incorruptible?
If you as the Welder of the future will be taking a central role in the quality control of welding work, then the materials control aspects will in all probability also be part of your responsibility. As such, blockchain technology could very easily become an everyday tool in your job.
What other transaction are you involved with that could benefit from the use of a blockchain type ledger?
Yours in welding
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