Blockchain is one of the most talked about technologies these days. It has the potential to disrupt the digital industry in the way that data is stored and maintained. In simple terms, blockchain is distributed secured storage spread across a network. It is open source and peer to peer (P2P). It is not controlled by a central authority; rather it is transparent to the masses. And the data, once stored, cannot be deleted – it is almost immutable. In other words, it is a ledger of records arranged in batches known as blocks which make use of cryptographic links to validate one another. Each block makes use of a hashing function to identify and reference the previous block. The trust of this technology is built on mass collaboration. So, this blockchain technology is poised to disrupt the digital business on the asset storage and management side. It will have an impact in all types of industry, be it financial, retail, transportation, etc. (To learn more about the technology that launched blockchain, see How Bitcoin Can Change the World.)
Why Blockchain Is so Popular
Blockchain has become the talk of the town of late. But it wasn’t until bitcoin made its way into the markets in 2009 that everyone began to notice it. Bitcoin became immensely popular as a cryptocurrency, and lately people have been looking at its underlying technology, blockchain, as a disruptor in the digital business space.
One of the first reasons it is popular is because it serves as a secure form of transferring value or information. Hence, it works as a secure payment option, one that cannot be tampered with. Blockchain technology also removes the use of a middleman, as the user can interact with the ledger directly.
Furthermore, the cost of transferring value or money is close to zero by the use of blockchain technology, and hence, reduces costs even for cross-border transactions.
How Blockchain Works
Blockchain is largely a distributed database. On a simpler scale, it can be viewed as a giant spreadsheet that runs on millions of computers across the world. Further, it is open source in nature and the underlying code can be changed, and is therefore transparent. Also, since it is peer to peer, it does not require any intermediaries to settle transactions.
Using state-of-the-art cryptography, it can automate payment protocols that are irreversible and tamper-proof. However, payments are just one aspect of the bigger picture that blockchain looks to offer. In fact, blockchain can be used to record any kind of structured information, say a global marriage registry or who owns a certain piece of land.
So, blockchain isn’t just going to help with financial transactions, but is an immutable and unhackable database of digital assets that is distributed in nature.
How It Can Disrupt Digital Assets
Blockchain poses an immense amount of potential that is enough to disrupt the way we manage digital assets. Keeping note of the capabilities that this technology possesses, it can disrupt the process by which financial transactions are carried out. For example, it can replace the traditional banking and financial institutions with P2P systems that operate in the back office. Bitcoin has also been a major talking point already, and is likely to see more value in the near future.
Blockchain will also pave the way for "smart contracts," as in a financial form of security held in an escrow network and computer code that will be forwarded to recipients depending on future events. And not just contracts, but also titles, deeds and other important documentation may be shared on a public ledger.
When it comes to innovation, whether it is a new game or music, blockchain can be used to record and state that a person had ownership of the intellectual property first. Even votes that are cast during an election can be recorded by blockchain technology.
What Are the Advantages of Blockchain Technology?
The advantages of blockchain are numerous. The process does not involve humans in the pipeline of transactions, nor does it use paper processes. Thus, a huge volume of transactions that could take weeks or even months to complete can be validated automatically. Even complicated transactions that need human intervention can be simplified by the use of blockchain.
As per Forbes, the popularity of blockchain is largely due to the following reasons:
- Blockchain validates and records all transactions that are made. Hence, as a public ledger system it is both reliable and secure.
- Miners authorize all transactions, which makes them immutable and prevents them from being hacked. Mining is a resource-intensive process by which transactions are added to the ledger (blockchain) of past transactions.
- It does not require a third party or central authority for making peer-to-peer transactions.
The decentralization of the technology is also very beneficial.
Some Real-World Use Cases
Blockchain is already being used by many institutions and to serve various purposes.
Deutsche Bank has revealed that it has been exploring the use of blockchain in payments and the settlement of fiat currencies, enforcement, derivative contracts, KYC, regulatory reporting and asset registries. This is being done at their innovations labs located in Berlin, London and Silicon Valley.
DBS Bank, in partnership with Coin Republic (a bitcoin company based in Singapore) and Startupbootcamp FinTech, organized a blockchain hackathon in May 2015 in Singapore to explore potential uses of the technology in the financial sector.
It is also believed that the US Federal Reserve, in association with IBM, is looking to develop a new digital payment system that is based on blockchain technology. Likewise, Banco Santander (the first UK bank to introduce blockchain technology) has had 20–25 cases of blockchain use and even has a team, Crypto 2.0, which is researching the use of blockchain in banking.
Even Citibank has different systems within Citi that make use of blockchain technologies. They have even developed something called Citicoin, which is being used to better understand digital trading systems.
NASDAQ also announced in December 2015 that using Linq, its blockchain ledger technology, it was successfully able to complete and record a private securities exchange transaction. This instance was the first of its kind making use of blockchain technology. (For more examples of blockchain's uses, see 5 Industries That Will Be Using Blockchain Sooner Rather Than Later.)
What Is the Future?
Considering the amount of hype that surrounds blockchain technology, it is surely set to improve and evolve in the near future.
Leading the way is Ethereum, which is a public blockchain and cryptocurrency platform having the facility for smart contracts. It is likely that Ethereum will dominate the industry in the near future. Smart contracts, it is believed, will be the future of blockchain. Hence, it is something that is seriously being investigated.
Governments and regulators are more likely to understand the concepts behind blockchain and further embrace it in their daily functions. Also, as more and more financial technology-based businesses and startups expand their use of blockchain technology, the hype around it is also unlikely to die down any time soon.
With blockchain technology evolving and making rapid progress, it has a tremendous amount of potential to completely change the face of digital businesses in the near future. Startups and financial technologies are investing heavily in blockchain technology as they see the future it holds, as its range of applications vary from financial transactions to digital storage and trading to intellectual property. Also, considering that transparency and security are two major advantages of the technology, it will only be a matter of time before common people and even governments get to see the advantages that blockchain promises to bring about.