Terms like ‘Blockchain’, ‘Bitcoin’ and ‘Ethereum’ are mentioned more and more. It seems that the Blockchain Technology, which is the technology both Bitcoin and Ethereum are based on, is here to stay and change the way we record data and make transactions (Gowers, Aminoff, 2017).
What is Blockchain Technology?
In the current system a third party is always involved when making a transaction. For example, when you pay to buy your groceries, your money is transferred to a bank, which will transfer the money to the supermarket. Blockchain Technology allows to cut out the middle man and create transactions which cannot be tempered with, by creating a distributed which checks every transaction within this network using ‘blocks’ (Crowe, 2016). You can see it as one big ledger recording all the data in the network, available for everyone and stored over the entire network (Gowers, Aminoff, 2017). An animated description can be found in the following link: https://www.youtube.com/watch?v=r43LhSUUGTQ&t=1s.
The potential of Blockchain Technology
As mentioned above currently we require trusted administrators to record and verify transactions and databases. With the Blockchain Technology these ledgers would be distributed throughout a network, which would make banking, auditing, even aspects of government obsolete (Ito et al, 2017). The trusted third party would be replaced would be replaced by encrypted and secure databases, controlled by the masses.
The potential of blockchain is huge, not only currencies or value could be stored digitally. Everything could be stored using a blockchain, without the use of a real-world equivalent. Think about contracts, wills, deeds, etc. (Gowers, Aminoff, 2017).
Some of the main advantages would be:
• It would offer truth and trust in any system, as it would give the opportunity to prove who owns what in any given situation. Anything that currently exists to verify contracts, payments or ownership can be shifted towards the blockchain.
• It would increase decentralization. Where currently a couple of big companies run entire systems, blockchain would create decentralized networks doing this work.
• It would increase traceability, and also decrease associated costs. Because all the information is constantly available on every piece of technology connected to the network, it would make it a lot easier to access this information for anyone.
• Furthermore, because of the points mentioned above, it would decrease the opportunity for crime. With transactions independently stored on the blockchain, these could be verified and traced independently. The result of this is that fighting crime, fraud and counterfeiting would be a lot easier and less costly (Gowers, Aminoff, 2017).
The start of the Internet was disruptive and game-changing. Blockchain Technology has the same potential. It could create a shift of the power of the 1% to the ‘everyday’ people (Ito et al, 2017).
Crowe, P. (2016). “There is a ‘game changer’ technology on Wall Street and people keep confusing it with bitcoin” [online] Businessinsider.com. Available at: http://www.businessinsider.com/what-is-blockchain-2016-3?international=true&r=US&IR=T/#blockchains-are-ledgers-like-excel-spreadsheets-but-they-accept-inputs-from-lots-of-different-parties-the-ledger-can-only-be-changed-when-there-is-a-consensus-among-the-group-that-makes-them-more-secure-and-it-means-theres-no-need-for-a-central-authority-to-approve-transactions-1 [Accessed 17 Oct. 2017]
Gowers, R., Aminoff, J. (2017). The big business revolution: why the future is blockchain. [online] theconversation.com. Available at: http://theconversation.com/the-big-business-revolution-why-the-future-is-blockchain-78409 [Accessed 17 Oct. 2017]
Ito, J. et. al. (2017). The Blockchain will do to the Financial System what the Internet did to Media. [online] hbr.org. Available at: https://hbr.org/2017/03/the-blockchain-will-do-to-banks-and-law-firms-what-the-internet-did-to-media [Accessed 17 Oct. 2017]
Hi Tim,
Interesting post about the use of blockchain and its possible uses. I myself also have a very big interest in blockchain technology and different currencies that are using it at the moment. I was wondering if you thought of any negative sides of blockchain technology? For example privacy might be a big problem. As you said every bit of information will be available to everyone connected to the blockchain. So other people can see how much currency you have in your account. I think this will be a big issue for a lot of people as they would like to keep this information private. Next to this there is almost no regulation yet on blockchain and its currencies. This is something that also keeps out the banks at the moment to invest heavily in blockchain technology as the regulations are limiting them here. Lastly The consumer protection is hard to fullfill. People who made a mistake in their transactions and paid too much (simple example) will need to trust on the other party to pay back what they paid too much. Now there is still a middleman who can control this.
Before blockchain can become big I think it has to sort out some issues still and it might never replace today’s businesses but might live alongside it and complement it.