When I first heard Blockchain, trust me, I was as confused as you are, even more. I dismissed it as a technical jargon until I truly understood it. Well, lucky for you, this post is here to simplify its meaning and application. After this post, I bet you could hold a tutorial about it all on your own.
Think of Blockchain as a car driving itself; there is literally no one behind the wheel. Of course, with the advancements in technology daily, a car that is “completely” self-driven may come to be in future. For now, it serves the purpose of our discussion.
You’ve all probably heard about bitcoin, “the digital gold”, right? Bitcoin is a technology that enables its users to transfer currencies directly to each other without any intermediaries and the first major innovation of Blockchain. Well, it is its (blockchain) most visible application, often referred to as “gatekeeper coin”. Bitcoin is actually the first digital currency to solve the double spending problem, as electronic files can be duplicated and spent twice unlike the physical tokens and coins, without the use of a central server.
For some, the Blockchain is just “the technology behind bitcoin”. Truth is, it spans wider and extends far beyond digital currencies. Blockchain brought about the realization that the technology operating Bitcoin could be separated from the currency and used for other inter-organizational processes. This has caused a lot of buzz with financial institutions delving into the research to understand how it works.
I’ll paint a little picture for you before you get confused with all the grammar.
When you want to make a transaction, like most people, you use a trusted middleman. This middleman is often a financial institution, preferably a bank. With the introduction of the Blockchain technology, the need for a third party is completely eliminated. This means consumers and suppliers can be in direct connection with each other easily.
Of course, the exchanges between these parties are kept secure using cryptography, through the time-stamping server and peer-to-peer network. And voila! The result is a database that is autonomously managed in a decentralized way or you can call it “digital ledger” of all transactions which can be seen by everyone on the network.
Whenever you hear a network, think of a chain of computers through which all exchanges must be approved before being verified and recorded. The Blockchain technology leaves no room for hacking or corruption as a result of the fact that there is no centralized version of any information stored. More so, records kept can be easily verified since they are made public. Basically, Blockchain cannot be controlled by any single entity nor does it have a single point of failure.
How exactly does it work?
With the internet gaining widespread popularity, information can be published by anyone and can be accessed by people all over the world. With Blockchain, it is more of an “internet of value.” This means that value can be sent anywhere in the world where the Blockchain file can be duly accessed. However, to have access to the blocks you own, you must have a private cryptographically created key. This private key can be transferred to someone else for the effective transfer of value stored in that Blockchain section.
This goes to show that all major functions carried out by financial institutions like banks, for instance, can be done faster and more accurately. Functions like verification of identities and the record of legitimate transactions. Thus, you can agree with me that it establishes identity and ensures trust between parties since it is non-refutable, secure, transparent and unbreakable.
What makes Blockchain so important?
The amazing thing about this technology is that it works with almost all types of transactions involving value. This includes money, goods, properties and it is not just restricted to financial transactions. It is indeed mind-blowing as its uses are quite limitless ranging from the collection of taxes to the ability of money being sent in nations where banking is quite difficult.
You remember the third party exclusion I wrote about earlier? It definitely applies here. Fraud is eliminated as all transactions can be seen by anyone since they are recorded and distributed on a public ledger. In simple terms, there is no behind-the-scenes transaction; since all ledgers are kept there.
It is still a revolutionary technology that can be used to make transactions by anyone with access to an internet connection when it goes mainstream. Well, it is still growing and carries much potential to change the dynamics of carrying out transactions in the world. The World Economic Forum’s Global Agenda Council suggests that Blockchain will in the next decade, increase quite significantly as more stakeholders, banks, technology firms and many others, come to realize its efficiency, speed, and reduced costs.
Forbes predicts that 15% of US Big Banks will be using the Blockchain technology by the end of 2017. Now you can only wonder why Wall Street and Silicon Valley are so hyped about it and the way it works.
Digging Deeper Into Blockchain
The origin of the Blockchain technology is quite vague. It is an invention known by the pseudonym Satoshi Nakamoto (believed to be an alias for a group of individuals whose identities have remained unknown) in 2008, with its first implementation in 2009 as part of the digital bitcoin currency. The identity of the inventor of Blockchain continues to be a mystery which I hope will get solved in the nearest future.
Initially, it was developed to enable the anonymous digital sending of payments between two parties without the interference of a third party. However, it was primarily designed to facilitate, authorize as well as log the transfer of crypto-currencies. Its technology does not allow information to be copied, but distributed; creating a fundamental support for a kind of international technology. Information doesn’t just exist; it is shared and continuously reconciled, offering a mouth-watering opportunity to track its entire flow.
The underlying code of Blockchain technology is useful as it gives a much more convenient and secure digital alternative to banking processes, especially since they are highly categorized as time-consuming and expensive.
Blockchain can be applied for a range of industries and services like electronic voting and authentication of voters, smart legal contracts, transfer of ownership of equities and clearing settlements, peer-to-peer payments, money transfers locally and internationally, patient health records management, proof of digital content ownership, amongst others.
Blockchain is a tool that is so promising in the nearest future. It will permeate many spheres like asset management, banking operations, supply chain management, health record management, amongst others; essentially offering the potential of mass disintermediation of transaction processing as well as trade.
The truth is that we are used to a decentralized online platform, like the internet, for the sharing of information; but we are too quick to revert to old-fashioned, centralized financial institutions like the banks we know for the transfer of value (money). Enter the new player; the Blockchain technology, which offers the possibility of eliminating third parties or middlemen (like the banks). Intriguing, right? Thus, it plays the important roles – transactions recording, identity establishment and contract establishment – these third parties would have done. There are, however, implications that could arise from this. The financial services sector, by market capitalization, is the largest industry sector. Replacing these sectors with the Blockchain would largely disrupt the operation of financial services industry, leading to greater efficiencies in operations.
Blockchain and Contract Establishment
Blockchain also performs the role of contract establishment which extends its tentacles past the financial services sector alone. In simple terms, asides the unit of value (like the Bitcoin explained before), Blockchain can be useful for the storage of any kind of digital information you can think of. Yes, including computer codes!!! I will give a teeny illustration of how this works.
The computer codes could be programmed to execute when keys are entered by certain parties. The codes can be read from external data feeds like weather reports, headlines of news or anything you can think of that can be parsed by a computer; creating contracts that are filed automatically when certain conditions are met. Little wonder they are called “smart contracts”. The possibilities for their use are basically endless. It can be channeled to medical records or even the regulation of intellectual property.
The use of digital currency is on the rise daily with Blockchain technology catching the attention of businesses, technology, and government leaders. Furthermore, it has been adopted by a variety of financial platforms.
I could ramble on and on about the potential benefits and uses of Blockchain technology, but I have to draw the curtain here. Summarily, the potential uses of this technology are so broad and I am sure that more and more industries will rapidly engage it in their operations in the nearest future.