Blockchain

Is there really nothing new under the sun?

I have always been fascinated with the creativity and ingenuity of humans throughout history. We often find it hard to believe that ancient civilizations could solve the problems they did without access to modern technology.  We all remember reading stories that discounted the ingenuity of ancient civilizations with wild tales about aliens or other forms of supernatural intervention. How could they build the pyramids or make such accurate astronomical projections after all? Then scientists would uncover how these feats were performed and we are left to marvel at how ancient civilizations achieved things that would be daunting even with our modern technology. Persistence and creativity go a long way. I thought it would be interesting to examine one such example of ancient ingenuity that, though not as spectacular as the pyramids, shows a similarity to some our most sophisticated technological processes.  It had me wondering if there really is nothing new under the sun.

Pirates, highwaymen, and other scoundrels

One challenge all civilizations throughout history have faced is the safe transport of goods from one place to another. Theft and piracy where always a threat and represented a challenge we still face today. Caravans and convoys with armed escorts were utilized but even this could not guarantee safety from the scoundrels of the day. Wouldn't it be wonderful to move goods from one place to another without physically moving those goods? Merchants and governments in the middle east around the 7^th century thought about this and they came up with an ingenious solution that is not unlike Blockchain.

Blockchain.

To begin this exploration let's take a look at a few Blockchain concepts.

At its core Blockchain has some basic components

1. A header
2. A hash
3. A ledger
4. A transaction

A basic Blockchain process looks something like this.

A hash is a sophisticated encryption of a header and for a transaction to move from one block to the next the hash of the previous header is required. There is a common ledger that keeps track of the current state of the transactions. At its core Blockchain is pretty simple but it is the basis of very sophisticated financial and distribution processes.

Introducing Hawala

It is not completely clear exactly where and when Hawala first came about but it seems to have emerged in the 7^thor 8^thcentury around southern Asia or the Middle East. It consists of administrators known as Hawaladars and business is conducted over a network of these Hawaladars.

Like the basics of Blockchain Hawala is pretty simple. Here is how it works:

1. John, who lives in a seaside town, wants to send his business partner George, who lives a hundred miles away in a farming village, ten gold coins as an advance payment on a grain shipment. John could physically make the journey to pay George or trust the gold coins to a caravan, but those options entail a fair amount of cost and risk.
2. John decides to use the local Hawaladar Sam. He does two things. First, he sends a letter to George describing the transaction along with a password. Then he contacts Hawaladar Sam with details of the transaction along with the password and he gives Sam ten gold coins.
3. Hawaladar Sam now sends a letter to Hawaladar Bill in the farming village. The letter contains the details of the transaction along with the password. He does not send ten gold coins.
4. In the farming village Hawaladar Bill approaches George and if George knows the password Hawaladar Bill gives George ten gold coins.

 That is all there is to it. John has sent ten gold coins to George without physically transporting them. The Hawaladars charge a small commission and everyone is happy. Of course Hawaladar Sam now owes Hawaladar Bill ten gold coins but then the next transaction could be a transfer of goods in the opposite direction. The two Hawaladars maintain a ledger between them and from time to time they will need to settle their ledger. They may even use another Hawaladar to do this.

Hawala is based on the honor system but being a Hawaladar was a very prestigious and lucrative position so maintaining the integrity of the system was extremely important. Throughout the years Hawala has been used to transfer all types of goods and services. It actually remains in use today especially in areas where access to modern banking is limited. Unfortunately, it is also used for more nefarious reasons like money laundering and drug trafficking to avoid audit trails associated with many standard business transactions.

Blockchain and Hawala

You can start to see the similarities between the two systems. Both Blockchain and Hawala define transactions and where Blockchain uses a hash Hawala uses a password. Both systems use ledgers to maintain the integrity of the transactions. Both systems manage to move things without actually moving things.  The parallels are fascinating.

Is there really nothing new under the sun?

I have always been fascinated with the creativity and ingenuity of humans throughout history. We often find it hard to believe that ancient civilizations could solve the problems they did without access to modern technology.  We all remember reading stories that discounted the ingenuity of ancient civilizations with wild tales about aliens or other forms of supernatural intervention. How could they build the pyramids or make such accurate astronomical projections after all? Then scientists would uncover how these feats were performed and we are left to marvel at how ancient civilizations achieved things that would be daunting even with our modern technology. Persistence and creativity go a long way. I thought it would be interesting to examine one such example of ancient ingenuity that, though not as spectacular as the pyramids, shows a similarity to some our most sophisticated technological processes.  It had me wondering if there really is nothing new under the sun.

Pirates, highwaymen, and other scoundrels

One challenge all civilizations throughout history have faced is the safe transport of goods from one place to another. Theft and piracy where always a threat and represented a challenge we still face today. Caravans and convoys with armed escorts were utilized but even this could not guarantee safety from the scoundrels of the day. Wouldn't it be wonderful to move goods from one place to another without physically moving those goods? Merchants and governments in the middle east around the 7^th century thought about this and they came up with an ingenious solution that is not unlike Blockchain.

Blockchain.

To begin this exploration let's take a look at a few Blockchain concepts.

At its core Blockchain has some basic components

1. A header
2. A hash
3. A ledger
4. A transaction

A basic Blockchain process looks something like this.

A hash is a sophisticated encryption of a header and for a transaction to move from one block to the next the hash of the previous header is required. There is a common ledger that keeps track of the current state of the transactions. At its core Blockchain is pretty simple but it is the basis of very sophisticated financial and distribution processes.

Introducing Hawala

It is not completely clear exactly where and when Hawala first came about but it seems to have emerged in the 7^thor 8^thcentury around southern Asia or the Middle East. It consists of administrators known as Hawaladars and business is conducted over a network of these Hawaladars.

Like the basics of Blockchain Hawala is pretty simple. Here is how it works:

1. John, who lives in a seaside town, wants to send his business partner George, who lives a hundred miles away in a farming village, ten gold coins as an advance payment on a grain shipment. John could physically make the journey to pay George or trust the gold coins to a caravan, but those options entail a fair amount of cost and risk.
2. John decides to use the local Hawaladar Sam. He does two things. First, he sends a letter to George describing the transaction along with a password. Then he contacts Hawaladar Sam with details of the transaction along with the password and he gives Sam ten gold coins.
3. Hawaladar Sam now sends a letter to Hawaladar Bill in the farming village. The letter contains the details of the transaction along with the password. He does not send ten gold coins.
4. In the farming village Hawaladar Bill approaches George and if George knows the password Hawaladar Bill gives George ten gold coins.

 That is all there is to it. John has sent ten gold coins to George without physically transporting them. The Hawaladars charge a small commission and everyone is happy. Of course Hawaladar Sam now owes Hawaladar Bill ten gold coins but then the next transaction could be a transfer of goods in the opposite direction. The two Hawaladars maintain a ledger between them and from time to time they will need to settle their ledger. They may even use another Hawaladar to do this.

Hawala is based on the honor system but being a Hawaladar was a very prestigious and lucrative position so maintaining the integrity of the system was extremely important. Throughout the years Hawala has been used to transfer all types of goods and services. It actually remains in use today especially in areas where access to modern banking is limited. Unfortunately, it is also used for more nefarious reasons like money laundering and drug trafficking to avoid audit trails associated with many standard business transactions.

Blockchain and Hawala

You can start to see the similarities between the two systems. Both Blockchain and Hawala define transactions and where Blockchain uses a hash Hawala uses a password. Both systems use ledgers to maintain the integrity of the transactions. Both systems manage to move things without actually moving things.  The parallels are fascinating.