In a Nutshell: When consumers use their credit cards at checkout, they’re exchanging bits of data that pass through a series of intermediaries before reaching their destination. Banking is a pre-digital industry and continues to face challenges in efficiency, cost, and reach. But æternity is looking to change that through its innovations in blockchain, the technology behind cryptocurrency. Blockchain can make transactions faster, and æternity is an open-source platform that brings the technology closer to realizing a scalable, decentralized, and secure financial services for individuals.
For all its gains in convenience, modern banking remains a traditional industry in many ways. Bound by an entrenched regulatory framework, the banking industry took form before the disruptive potential of the internet was even a dream.
Today, financial transactions occur in a hybrid legacy-digital environment. Corporate and consumer data exist in centralized repositories vulnerable to hackers. And intermediaries create delays and extract fees from the system, adding inefficiency and costs.
Blockchain technology, which was developed in 2008 in order to enable Bitcoin, has emerged as a potential solution to those challenges. The technology has the power to disrupt not just the financial services industry but also many corporate and governmental entities that act as intermediaries in transactions. Blockchain looks to a future in which any two individuals can securely exchange funds directly with one another, with only the rules inherent in the platform to govern them.
To advance that goal, æternity built an open-source ecosystem to enable faster transactions and bring the internet closer to a practical realization of blockchain technology.
The original open-source blockchain exists as a data ledger on a public network. Every computer, or node, on the network houses a complete copy of the ledger, which consists of a permanent, chronological, cryptographically secure chain of data blocks, each of which contains a list of transactions. Before a new block can enter the chain, it must be validated, and then every node on the ledger gets updated. A successful hack of one block on one node — a nearly impossible task by itself — invalidates the block’s secure key and is rejected by all other nodes.
Unfortunately, all that data distribution and cryptographic validation make current blockchain iterations too slow and crash-prone to replace systems that currently perform billions of financial transactions worldwide each day.
That’s why æternity’s scalable, secure solutions can be so crucial to the future of blockchain technology in the finance industry. The platform, which launched in late 2018, offers a glimpse into a world of decentralized transactions without burdensome regulations or intermediaries.
“With innovations for increasing speed and automating transactions, æternity offers a robust platform for overcoming scalability roadblocks,” said Vlad Dramaliev, Head of Digital Marketing at æternity.
And that means new opportunities for developers who can use æternity to help them build on the future of blockchain and decentralize financial services.
Scaling the Blockchain for Real-World Applications
To improve the scalability of its network, æternity looks for performance enhancements both on and off the blockchain. Blockchains themselves are synchronized across a network of nodes using a consensus mechanism. The most popular such mechanism is known as proof of work (PoW). In the original Bitcoin PoW architecture from 2008, transactions seeking a place on the chain wait for “miners” to validate and distribute them to the nodes in return for a reward earned by solving a cryptographic puzzle.
As the first blockchain project to use the more efficient Bitcoin-NG PoW mechanism, æternity lets miners holding the “key block” for solving the puzzle validate new transactions in “microblocks” as they arrive on the network. The result is an improvement in transaction speed from about seven per second on the original Bitcoin blockchain to around 120 on æternity’s.
“Our implementation of Bitcoin-NG improves on-chain scalability without compromising network decentralization,” Dramaliev said. “It’s an important component of our overall approach.”
Off-chain, æternity achieves additional enhancements in the way it handles smart contracts — protocols, or programs, that live on the network and enable the peer-to-peer execution of business processes and other transactions. Smart contracts are the key to converting legacy transactional forms requiring trusted intermediaries into secure, purely digital interactions that are trustless, open-source, and transparent.
Rather than make smart-contract execution part of the blockchain, where it has been shown historically to degrade performance, æternity runs smart contracts in what it calls state channels.
“State channels are private, two-way interaction channels between parties. Users open a state channel between them by performing a single transaction on-chain, and then they can start exchanging information, value, or data, absolutely free of fees and in parallel to the main network, but with the same security and completely privately (purely peer-to-peer),” Dramaliev said. “That means no additional load on the main blockchain. Speed is limited only by the bandwidth and CPU power.”
And æternity uses oracles to ensure real-world information is integrated into smart contracts and its tools for third-party app development. Oracles are a link between data from the physical world — including everything from temperature to stock prices to inventory shortages — and the virtual blockchain. The result is an unprecedentedly seamless, public, open-source way to do business.
“We’ve made it easy for developers to access a stack of essential, built-in technological features to deploy their own applications. State channels, oracles, and a naming system are all currently available. We also have a custom-built, functional smart contract language — Sophia — that increases the efficiency and security of decentralized apps while it natively supports all the other tech features. I expect that services and businesses built on æternity’s open-source infrastructure will unleash mainstream blockchain adoption on a global scale,” Dramaliev said.
How æternity State Channels Democratize Transactions
As efficient PoW and state channels enable more transactions, the æternity blockchain creates a powerful infrastructure that enables new business models. For example, æternity enables micropayments — fractional digital remittances made in real-time in return for incremental services. These micropayments can be automated with smart contracts and executed in state channels.
“Consumers currently pay Netflix the same amount every month no matter how much they watch, or even when they don’t watch anything at all,” Dramaliev said. “State channels stand ready to bring micropayments into the mainstream so people can pay smaller amounts on a per-use basis. This could open up services to consumers who cannot afford monthly payments.”
On the entrepreneurship side, æternity operates an investment arm called æternity Ventures. The firm offers technological, product, marketing, accounting, and legal support to projects seeking to create practical applications on its blockchain. One company it assists is UTU Technologies, a Nairobi, Kenya-based sharing platform for trusted service providers.
Banking infrastructure may be meager in Kenya, but mobile technology is well established. UTU got its start by creating an AI-powered recommendation engine to help consumers assess the trustworthiness of digital entrepreneurs based on their relationships, past experience, and other contextual factors.
“Now UTU is leveraging the æternity blockchain to build a ‘trust infrastructure’ that will be available as an API and a suite of smart contracts for sharing economy platforms,” Dramaliev said.
Kenyan insurance startup RideSafe has also been funded by æternity Ventures. “If you use motorcycle-based taxis in Kenya, as millions do, there’s a danger of getting injured in an accident,” Dramaliev said. “RideSafe gives riders a QR code to wear on their helmet indicating that they have insurance. Because the relationship is entirely on the æternity blockchain, the code enables riders to make small contributions through their mobile wallets that make them eligible for immediate care at a RideSafe partner facility.”
Making Financial Services More Efficient and Accessible
The UTU and RideSafe investments exemplify æternity’s commitment to facilitating transactions in places where legacy financial infrastructure is relatively underdeveloped. But blockchain technology can also serve those in countries where legacy infrastructure hinders efficiency.
Cross-border money transfers, for example, have long been cumbersome and expensive to execute. But blockchain technology can make them nearly instantaneous for consumers — by switching to a mobile-based solution. Also, because immutable ledgers are excellent for keeping track of transactions, businesses can use them to track titles, liens, and many other records. In the long run, blockchain technology can completely disrupt the banking business and decentralize bank-like services.
And, when high fees and minimum balance requirements block consumer access to mainstream credit services, blockchain-based solutions can step in and reduce the need for costly alternatives like payday lenders. The blockchain may even create an atmosphere in which bank accounts are available to a broader range of consumers.
In countries like Kenya, where the informal economy generally takes precedence over banking, the blockchain makes mobile wallets and other peer-to-peer payments more secure.
“Within the bounds of the regulatory frameworks governing financial services in various locales, the æternity platform is flexible enough to accommodate a number of innovation pathways,” Dramaliev said. “Our state channel technology works even in conditions where internet connection is spotty. Users can perform transactions, and, when connectivity resumes, they can settle them on the main network.”
While there is work to be done, both in terms of application development and mainstream acceptance of blockchain technology, the æternity platform is moving the ball forward. It increases the efficiency and utility of blockchain transactions, enabling new forms of peer-to-peer commerce while also offering businesses state-of-the-art security and privacy.