By Gillian Burdett
Blockchain is the technology underlying Bitcoin, the digital currency that sidesteps banks to send money around the world. Will Bitcoin be around 10 years from now? That’s open for debate, as currencies come and go. The real question now rising from Silicon Valley and 3,000 miles east to Wall Street is this: “Will Blockchain technology transform the way we do business?”
What is the blockchain?
Simply put, the blockchain is a database that holds transaction and assets records. It is stored across a global peer-to-peer network of computers each holding identical copies that are simultaneously updated every time a new transaction is added.
Blockchain is often described as a digital shared ledger. Imagine the old green ledger book once used to record business activity. Entries were made in ink so that each transaction became part of a permanent record. It could never be deleted or erased, only changed with a correcting entry further down the page. Each new entry locked in the one before it.
Put the ledger online so that all parties to a transaction have access. One ledger for all stakeholders with identical copies stored in multiple locations make fraudulent entries impossible. Everyone is watching, and signing off on, every addition to the database. Each transaction becomes a block, which is linked to the one before it and locked in by ones following it, creating an immutable chain.
What are the advantages of blockchain technology?
Because the blockchain is stored in multiple locations, exchanges of value do not depend on the integrity of a central clearinghouse. Files on centralized servers can be corrupted and are vulnerable to human error and malicious hacking. The blockchain is an efficient system. Transactions are processed quickly. They are recorded once and are seen and verified by all parties.
Economic activity has always depended on trust. In the global marketplace, businesses and consumers trust financial institutions, corporations and government agencies to accurately and safely process transactions. When a business remits quarterly sales tax payments, for example, it must trust the bank and the state to process the transaction accurately. Consumers making an online purchase must trust that the retailer will ship the correct item and not misuse credit card information. With a blockchain, trust in these institutions isn’t needed. All parties to a transaction can view and approve the exchanges of value for themselves.
What are the practical applications of blockchain technology?
Blockchain technology is still in its infancy, but it could revolutionize the way value is exchanged worldwide. Individuals, theoretically, could store all their personal information in an encrypted digital wallet that holds not only virtual money but a driver’s license, professional credentials, medical records, credit history, the code to turn on the lights in a home, anything. All this information would be verified, and an individual could make it available to interested parties when transacting business.
Smart contracts would give parties to an agreement a single place to record contract terms and each party can sign off when terms have been met. A buyer that requires a manufacturer use only union labor to fill an order can verify that this term has been met by viewing the workers’ union credentials that are tied to specific products.
Consumers can trace the origins of a product to verify its authenticity. Players in the sharing economy, such as Airbnb and Uber, may use the technology to verify identities and associated reviews. In the real estate sector, title searches and title insurance would be a thing of the past if property records are locked into a blockchain. The financial services industry could harness the technology to add speed, security and transparency to product sales. The technology also has the potential to make online voting safe and free of fraud. These are just a few examples.
In a June 2017 white paper, The World Economic Forum writes, “Blockchain’s ability to generate unprecedented opportunities to create and trade value in society will lead to a generational shift in the Internet’s evolution, from an Internet of Information to a new generation Internet of Value.” Changes are coming, and organizations can get an edge on the competition by determining how to leverage this technology to improve efficiency and cut operating costs.