This question comes up in conversation occasionally, and I thought I would provide my thoughts here.
Remember that at its core Kinesis is designed to be a monetary system. Kinesis combines the advantages of physical gold and silver with new technology (notably the blockchain) to eliminate some of the disadvantages inherent in using physical metals as money, but it's designed to function as money.
So I am going to look at some advantages the blockchain offers over an internal database when looking at it from that perspective:
Let's say I'm at a car show, and I see a beautiful 1968 Mercury Cougar XR-7 - you know, like we saw in From Dusk Til Dawn.
Except this one is immaculate. And clean. And it's got a for sale sign in the window. Let's say it's $60,000, and my wife is indulgent and she encourages the purchase.
You're the seller. We agree on $52,000 paid on the spot - you'll sign the title, we'll shake hands, and we're done.
How do we structure this transaction?
You guessed it. We're on the Kinesis forum, so we use Kinesis:
Resiliency and Proof
Other things people don't think about when making this argument: I have a copy of the Kinesis KAU and KAG blockchains. I can prove how much I own should I need to.
I've also got metal stored with a pooled/allocated solution you've probably heard of. If the web site and app no longer work one day because they went out of business, or got their computer infrastructure and backups infected with malware that was too aggressive and couldn't be removed, or things finally popped off with China and an EMP fried the electronics that company used to track metal ownership...how do I prove what I own? It's not like I've got paper receipts. I can prove what money I sent in to them, but can I document the purchases of how much gold/silver/platinum I made, and in which vaults? That's tough.
With Kinesis should one of those things happen I've got a copy of the blockchain. I can sort through the spreadsheet I downloaded and prove how much is mine. Or I can pay an accountant the bankruptcy court trusts to do so.
A database is an internal tool - a blockchain is outward facing, where anyone can read it. There are times when this can be very useful, especially if we're talking about assets worth significant amounts of money.
Going back to resiliency and risks of data destruction or EMPs or what-not: Kinesis maintains blockchain nodes across the world. All computers going dark in the US, or in Asia, or Europe won't affect the blockchain nodes - they'll keep chugging away. And they won't affect my node, or the CSV files I've already downloaded.
So, I'd argue there's value in using a blockchain over an internal database for projects like Kinesis that aim to be a new form of money.
Remember that at its core Kinesis is designed to be a monetary system. Kinesis combines the advantages of physical gold and silver with new technology (notably the blockchain) to eliminate some of the disadvantages inherent in using physical metals as money, but it's designed to function as money.
So I am going to look at some advantages the blockchain offers over an internal database when looking at it from that perspective:
- Blocks on a blockchain are immutable. This means that once a transaction is made in Kinesis it's stored there for all time. It's mathematically and computationally impossible to "hack" the blockchain and change the data in that block once it's been added to the chain. Historical transactions cannot be edited.
- It's public. Anyone can look at the blockchain and see every single transaction that's happened since the beginning.
- It's distributed. Yes, most of the nodes that participate in forming consensus (the trusted ones) are currently run by Kinesis, but anyone can spin up a watcher node and have their own copy of the blockchain. Even better, Kinesis' nodes are spaced out around the world, so disasters that affect continents shouldn't affect the blockchain - its existence or its ability to keep functioning despite the disaster.
Let's say I'm at a car show, and I see a beautiful 1968 Mercury Cougar XR-7 - you know, like we saw in From Dusk Til Dawn.
Except this one is immaculate. And clean. And it's got a for sale sign in the window. Let's say it's $60,000, and my wife is indulgent and she encourages the purchase.
You're the seller. We agree on $52,000 paid on the spot - you'll sign the title, we'll shake hands, and we're done.
How do we structure this transaction?
- If we lived in the same town we could go to my bank, I'd have them write a bank check, and I'd hand that over. But I live in another state, and we're at a car show on a Sunday so that's not an option.
- Will you take a check? I promise the check is good. Maybe I even log into my banking app and show you plenty of funds to cover the purchase. I'm guessing you'll say "no," because there are simply too many ways I can play the system so the check is no good when you cash it - hell, I could have a fake ID to match my stolen checkbook and this is how I'm laundering the money!
- OK. Maybe I just happen to be carrying $52,000 in $50 and $100 bank notes. Do you accept that, knowing you're giving up the car so it will be driven out of state? I think the risk of counterfeit bills being passed is too high, and let's be honest: do we really use paper money enough to recognize counterfeit bills?
- OK. We both like muscle cars, and we both like gold and silver. Let's say I happen to have 2,476 ounces of silver coins in my SUV. Yep, all 170 pounds of silver, because That's How I Roll. Do you take them? Or do you start to remember those stories about high quality Chinese fakes that are going around nowadays? You wanna go home and get your testing equipment and test over two thousand coins? Maybe we use gold instead - it's 28.35 troy ounces. Do you trust it, and how do we fractionalize that deal? Gold has a density of 19.30 gcm - can you be sure you're not getting gold-coated tungsten bars instead? Tungsten's density is only 0.26% less which is pretty close...
- Well, if my bank was open I could wire you the money. You'd get it in 2-3 days or so. Unless it was rejected.
- What about PayPal? "I" have a verified PayPal account and therefore I can send up to $60,000. Will you take Paypal? I'm guessing no, because that's riskier than taking a paper check (which at least has stronger criminal penalties for fraud.) And again - I could be laundering money using stolen credentials.
You guessed it. We're on the Kinesis forum, so we use Kinesis:
- I send you the equivalent of $52,000 in silver. So I send 2466.20820 KAG to your account.
- You know within 2-3 seconds that you've been paid. And you know that's title to 2446 ounces of silver that you own now. I can't change my mind - it's yours.
- I've got a record that you've been paid. (Should you scream "sucker" and hop in the car and drive off I've got recourse. Unlike with physical metal or cash. Sucks for me, but I'll be able to be made whole again.)
- You sign the title and a bill of sale, and we're done.
Resiliency and Proof
Other things people don't think about when making this argument: I have a copy of the Kinesis KAU and KAG blockchains. I can prove how much I own should I need to.
I've also got metal stored with a pooled/allocated solution you've probably heard of. If the web site and app no longer work one day because they went out of business, or got their computer infrastructure and backups infected with malware that was too aggressive and couldn't be removed, or things finally popped off with China and an EMP fried the electronics that company used to track metal ownership...how do I prove what I own? It's not like I've got paper receipts. I can prove what money I sent in to them, but can I document the purchases of how much gold/silver/platinum I made, and in which vaults? That's tough.
With Kinesis should one of those things happen I've got a copy of the blockchain. I can sort through the spreadsheet I downloaded and prove how much is mine. Or I can pay an accountant the bankruptcy court trusts to do so.
A database is an internal tool - a blockchain is outward facing, where anyone can read it. There are times when this can be very useful, especially if we're talking about assets worth significant amounts of money.
Going back to resiliency and risks of data destruction or EMPs or what-not: Kinesis maintains blockchain nodes across the world. All computers going dark in the US, or in Asia, or Europe won't affect the blockchain nodes - they'll keep chugging away. And they won't affect my node, or the CSV files I've already downloaded.
So, I'd argue there's value in using a blockchain over an internal database for projects like Kinesis that aim to be a new form of money.
