What connects Medici, Jagat Seth, Rothschild, J.P. Morgan and Byzantine General's problem?
"Who controls the money controls the world"
Medici's were the first family of capitalism, attained prominence in Florence in the 13th century through its success in banking. The family produced four popes of catholic church, two queens of France, attracted talent, promoted science, financed Renaissance Art and pioneered philanthropy. Medici's family ruled Republic of Florence for 300 years and controlled all aspects of its citizen's every day life.
Jagat Seths - Immensely powerful financiers in 1700's India. The Jagat Seths could make or break anyone, including the rulers and traders. Jagat Seth pioneered core banking and payment network. Transporting revenue and tax from Bengal to Delhi on horses and elephants was a risky business, instead tax money was deposited in Jagat Seth's Bengal branch and letter was sent to Delhi branch confirming the receipt, Jagat Seths promptly released the money to the emperors. They were the richest family in the world during 1700's.
Rothschild family, the most famous of all European banking dynasties, which for some 200 years exerted great influence on the economic and, indirectly, the political history of Europe. Rothchild pioneered international banking, Mayer Rothschild's sons setup branches in Frankfurt, London, Paris, Vienna and Naples and expanded into real estate, mining and Energy.
John Pierpont Morgan bailed out United States from economic collapse in 1895 by extending $65 million loan to US Government, had to step in again in 1907 to bail out NYSE and banking industry by deploying his personal wealth. As a consequence, in 1913, US established Federal Reserve bank to control monetary policy and act as the lender of the last resort.
Trust is vital in any financial transaction, the intermediate market makers have been the trusted central party to authenticate, to assess credit worthiness and to execute trade.
Intentionally or accidentally the central party actions can dilute wealth or in some cases unilaterally exclude market participants. Centralized model has not been disrupted for 1000+ years because it is not easy.
Can you build decentralized trusted financial network?
Byzantine General's problem is game theory thought framework. The problem is that multiple generals besiege Byzantium. They've encircled the city, but they must decide whether to attack or retreat as a group. Operation's success hinges on arriving at consensus without centralised authentication or communication mechanism.
Satoshi Nakamoto solved the problem elegantly using "Proof-of-Work" framework that forms the basis for Bitcoin, "Proof-of-Stake" is an alternate solution promoted by Ethereum founder Vitalik. We might be in the middle of Crypto winter but I suspect story is not over yet, to be continued...
Note: Views are personal, recommend reading "The Anarchy" by William Dalrymple
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