Blockchain technology is hailed as the next big thing. Some say that the impact of this new technology on our daily lives is akin to the impact of the internet. Remember what the internet was like in the 90s? Even though it was difficult to use and only starting to become visible in daily life, it already had all of the characteristics that make up the powerhouse that is the internet today.
The same goes for blockchain technology. While still in its infancy it has the potential to change the world. Why? Because it will change the way we trade.
In 2008, an as of yet anonymous internet user posted a new potential way to do transactions on a cryptography forum. He aimed to create a new, transparent currency based on cryptography; cryptocurrency. His paper was the beginning of what we now call bitcoin and blockchain technology. The blockchain is the underlying technology of the bitcoin and has potential uses far broader than cryptocurrency alone. However, since the nature of transactions is much simpler for money, it's only logical that it started there.
So, what is the blockchain? The blockchain is nothing more (or less) than a technological innovation. An innovation that has the potential to change a lot of aspects of our lives. In essence, it takes away the need for a third party in a transaction. Based on math and computing power, it empowers its users to oversee all transactions from all participants.
The blockchain can be explained by the analogy of a book. Start on the first page of the book and write down the transactions that should be tracked. The page represents a block. Because the pages in books are numbered; the pages form a sequence. This is similar to how the blocks in a blockchain are linked. Every block links back to its predecessor, like the next page in a book refers to the previous one. The beauty of a blockchain, however, is that based on smart networking protocols, everyone in the network always has an up-to-date copy of 'the book', and pages can be magically added.
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By being able to see every transaction up until that point, it is virtually impossible to fool or falsify any transactions coming afterwards. On top of this characteristic of distributed trust, the information on it is anonymous. Next, the technology enables people to perform transactions instantaneously. Using the power of programming, the transaction can be validated automatically whenever certain conditions are met. Finally, the costs of maintaining the technology are a lot lower, because of its distributed nature. Everyone takes a piece of the load.
An example of this is provided by ING; they're currently working on a system, using the blockchain to eliminate paper-based verification that comes with a simple transaction between buyer and seller. Take a look at their introductory movie.
Thus, the blockchain has a number of defining characteristics that set it out from the current way transactions are being handled:
- There is no one party that controls the transactions
- The system is fully transparent, everyone can see everything
- The distributed nature effectively shields the network from single points of failure or critical attacks
- It's anonymous (as far as possible in this day and age)
- It's nearly instantaneous and does not see/respect borders
- The costs are relatively low
Current and potential applications
As said before, the technology of the blockchain inspires many and the field sees a lot of movement. Of course, any new technology has to have very simple and cost-effective applications to make sure that it trickles down. So beyond bitcoin and other cryptocurrencies, what other applications will there be?
- Smart money/contracts - Already a possible evolution on currencies like the bitcoin. Programming money so it knows to whom it belongs. Think of a sports bet, the money is programmed to automatically go to party A whenever their team wins or to party B if vice versa. Smart contracts are the same, but represent goods instead of money.
- Identity management - There are applications that use the blockchain to exchange sensitive data between parties. An example is the app Dappre. Providing its users with a centralised contact ledger, it enables its users to share their contact information using the blockchain.
- Transactions in general - Possibly all transactions in which it is of value to know who owns what. Think of home ownership, certificates, stock trading etc.
View on the future
The question that of course remains is, what does this mean? The implications are potentially massive, but the technology is currently still in its technological phase. People, companies and governments are trying to find out what works, what doesn't. In the process, they are resolving the growing pains resulting from an emerging technology.
Almost everyone will come into contact with blockchain technology in one form or the other. So reading up on what's happening in the field is wise. Companies might decide to participate in the blockchain development. This means taking an active role in a blockchain, performing and validating transactions and improving the system. Alternatively, the current role of a company could be replaced by blockchain technology. Think of a bank that facilitates transactions, potentially becoming obsolete whenever blockchain technology implementation is widespread. Many potential parties that might become obsolete are currently powerful players in their fields. They are therefore working hard to keep their spot at the table, either by facilitating the network or creating standards for the years to come. Either way, everyone is working hard to remain relevant. Take a look at the example of ING earlier on.
What to do
Concluding, the blockchain has the potential to change the fields of not only banking and money but any system in which people are interacting and doing transactions. All of these can be, and probably, will be supported by the blockchain in one way or the other. The technology will have more value if more people participate. Either in terms of cost of maintenance (in a broad sense), but also because the need for alternative systems will decrease.
However, a number of hurdles are still to be taken. For one, trust should be established. People, and perhaps even more so companies, should feel secure in using blockchain technology. Furthermore, anonymity doesn't play nice with transparency. Because for a fully transparent blockchain, the anonymity takes a hit. Information can be traced back whenever your unique identifier is linked to your real world persona. A solution for this issue still has to be found, meaning that if participants want to have both anonymity and full transparency, there's still a lot of work that can (and should) be done.
The technology can quickly affect even the most non-technological fields. So managers should be prepared, know that the world could be changing rapidly. It's possible that a lot of institutions, companies and business fields, will have their roles shuffled in the near future. Company management should know how this will affect their business. Thinking in positive terms, management should ask themselves: what can the blockchain do for their business?