Encryption and the Real World: Exploring their similarities!
👩🚀🪢The PoW currency system and gold have many similarities that make people contemplate their relationship to the real world. These similarities include resource mining, supply stability, and fulfilling monetary functions. This article will explore these similarities and compare blockchain to traditional bank settlement.
PoW currency is similar to gold
🌖Both PoW currency and gold share similarities in terms of resource mining, stable supply, and possess the following characteristics.
Energy consumption
PoW mining and gold mining both require a lot of resources. PoW mining requires a lot of electricity and computing power, while gold mining requires mechanical equipment and the labor of miners.
Limited supply
Both PoW currency and gold exhibit scarcity. For example, Qitmeer’s monetary economic model sets a maximum of only about 210.24 million MEER, and similarly, the resource supply of gold is also limited.
Value storage
PoW currency and gold are both regarded as value storage tools. Gold is highly regarded for its scarcity and historical value, while some PoW currencies are also regarded as a value storage method due to their scarcity and market recognition.
Liquidity
Both PoW currency and gold have certain liquidity. Gold can be bought and sold in gold shops and banks to obtain cash or other assets. Similarly, PoW currency can be traded through digital currency exchanges and exchanged for legal tender or other digital assets.
Competitive mining
Process where participants engage in competition to earn rewards. In Qitmeer mining, miners acquire MEER tokens by solving complex mathematical problems, similar to how gold miners search for and extract gold ore to obtain gold.
Blockchain is an alternative financial infrastructure
🗼The complex intermediate links of traditional bank settlement methods make international remittances expensive and time-consuming. The SWIFT system and other traditional clearing institutions require multiple transfer steps and various fees. The delays and exchange rate losses caused by this make cross-border remittances expensive.
In addition, the banking system requires a large number of branches and data centers, which consume a lot of electricity.
Traditional bank settlement
The banking system is a complex clearing system that ensures the security and accuracy of transfers through multiple clearances. In bank transfers, regulatory requirements need to be met to ensure that funds are compliant.
SWIFT, the global cross-border payments system, relies on outdated architecture that has been in use for decades. While SWIFT has long been the dominant architecture for cross-border payments worldwide, its aging architecture has limited its adaptability and efficiency in the modern payments environment.
🎃To better understand, we can illustrate with an example:
The international remittance clearing process is complex. Transfer instructions go through multiple intermediary nodes, including the opening bank, SWIFT national processing center, another country’s processing center, receiving bank, and central bank. These nodes assess the legitimacy and security of the transfer and provide status reports to the remittance. This process takes time and incurs additional fees.
Banks at each intermediary node apply a service fee before initiating the payment system and retain customer funds for an extended period. Consequently, international remittances usually take 3–5 business days to be delivered.
Meanwhile, cross-border remittances involve currency exchange transactions, allowing banks to generate profits by taking advantage of the difference between buying and selling rates. The combination of service fees and exchange rate fluctuations can amount to 3% or more of the transfer amount, and in certain African countries, it may even escalate to 10%.
Moreover, the banking system requires a large number of branches and data centers to handle daily transfers and business operations. This leads to significant expenses and energy consumption. According to a 2021 research report by Galaxy Digital, the carbon footprint of data centers owned by the top 100 banks globally is more than twice that of the Bitcoin network.
Blockchain settlement
🌐The banking system’s books and physical banknotes are separate. The ledger records transactions and money flow, while banknotes are the physical currency used in daily life. However, the advent of blockchain technology allows the two to be combined.
This doesn’t sound magical, for example, writing in a notebook: Today A gave B one hundred yuan, which is a transaction recorded in the ledger, very simple. The problem is that the one hundred yuan in the ledger is only an abstract number and cannot directly replace real currency.
Therefore, even with a ledger record, you still need to have actual banknotes outside the ledger for shopping and transactions.
Bitcoin and Qitmeer are public blockchain networks that rely on computational power competitions to ensure the security of their ledgers.
The key advantage is the seamless integration of ledgers and currencies, enabling direct trading of digital currencies without the need for complex clearing processes, but also guarantee the accuracy and security of the ledger.
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In short, although there are some differences with the traditional financial system, PoW currency implements decentralized transactions and value transfer through blockchain Technology, making transactions more secure and transparent. Cryptocurrency is expected to play a more important role in the future and have more connections with the real world.
