Shortly after the 2008 global financial crash, a mysterious white paper emerged from an unknown entity. A person or group calling themselves Satoshi Nakamoto, in this mysterious white paper, a new peer to peer financial system was discussed. It was to use a digital cryptocurrency called Bitcoin.
It was an omen to people being sick of centralized power meddling with economic systems. Many perceive this new system as a better way of doing things. The technology invented to power this new system was called blockchain and Nakamoto’s paper was its grand unveiling.
On this page, we’ll talk about some exciting implications of this technology and the impact it could have on all of our lives.
So what is blockchain? It’s the underlying technology behind cryptocurrencies like Bitcoin and Ethereum, but it uses go far beyond that. It all sounds complicated but let me try and break it down into one sentence and important concept that you need to remember – simply put, blockchain is a continuously updated record of who holds what.
These records are split into link blocks and then secured using cryptography. The cryptography part just means you can be sure about the records. This is dubbed as automated trust or trust that’s inherently built into the system.
The list of records, known as a distributed ledger, is decentralized and available to everyone to see and verify. In addition, the blockchain is tamper-evident and unhackable due to it’s distributed nature. Everyone knows when a block has been messed with because it is rejected by the rest of the system.
Blockchain has a social perception strongly related to Bitcoin and other cryptocurrencies. Most people view the blockchain as something for intellectual tech-savvy criminals or people that are anti-government, but the emerging truth is that the blockchain has applications far beyond cryptocurrency and as a whole will be nothing short of revolutionary.
“A blockchain is just a special type of data repository that is in itself tamper evident.” Dr. Adrian McCullagh
Blockchain technology has been called the next stage of the internet by many.
“This is now the next generation of the internet and that it holds vast promise for every business, for every society and for all of you individually.” – Don Tapscott
Our currency internet is an internet of information. It’s based on the concept of copying and distributing information, be it video, email or data. All of these are copies. For example, if you want to watch a video on YouTube, or receive an email, you’re looking at a digital copy of the original. But what if we take this further to the next stage? What about assets that provide real value like contracts such as a house or car ownership, a stock, a bond, money, votes or digital identities.
The problem is, you don’t want to have these things as copies. For example, you don’t want to send someone $5,000 yet still have the original $5,000 under your name. This was called the double-spending problem by cryptographers. Despite the name, this basically means the problem of having two digital copies of something that should only have one unique identity.
The cryptography element of the blockchain enabled it to be the first technology of it’s kind to solve the double spending problem. Now for the first time, we can build a new stage of the internet based on real value and this is partly why it’s such a big deal.
So where can the blockchain be applied? In my talk with Dr. Adrienne, he discusses the FITS model of blockchain application. FITS is an acronym. Using this model, the best places to use blockchain are places with high possibility of Fraud, an Intermediaries or middleman, environments with high Throughput and stable data.
“The FITS model stands for, F stands for fraud. If you are in an environment, where there is a history, propensity, likelihood of fraud involved in various transactions, then the blockchain can assist in reducing the likelihood of fraud actually occurring.” – Dr. Adrian McCullagh
This is why blockchain is being used for international finance transactions. The next area of FITS is I. If you have an environment where there are intermediaries involved, then you may be able to disintermediate those parties if they really don’t provide value.
He goes on to say that we can get average transaction settlement times from two days down to 15 minutes by taking away the middleman.
Throughput, or a number of transactions per second, is another consideration. It turns out that Bitcoin can only do ten transactions per second while MasterCard and Visa can do about eighty thousand. But researchers are currently looking into increasing the throughput.
Stable Data: The next is the stability of data. For a blockchain application, you don’t want volatile data. You want things that are going to stay the same for at least a while, things such as land ownership titles and personal information.
So that’s the theory about what systems you should look for in regards to using blockchain applications. But where is the blockchain actually being used today?
Here’s a quick-fire round of applications underway:
- Sweden’s blockchain-powered land registry is inching towards reality. Blockchain land registries are being looked at in Honduras and Sweden.
- Diamonds are looking to be tracked by the blockchain to stop things like blood diamonds.
- The Nasdaq Stock Exchange will soon begin a blockchain system to record the trading and privately held companies.
- The Bank of England has stated that the blockchain is a significant innovation that could have far-reaching implications in the financial industry. Not only this, but six banks including Barclays, Credit Swiss, and HSBC are all planning on making a single digital cryptocurrency to clear and settle transactions using the blockchain.
- Microsoft is even getting in on the action by building a framework using the Ethereum blockchain.
Blockchain goes even further when we talk about something called a decentralized autonomous organization. A DAO for short. Because of blockchain technology, we now have the capability to create huge company organizations that are distributed and automated for the first time in history. This has never been done before and could provide near limitless potential.
Before the blockchain, we were already halfway there. We have organizations like YouTube that are a mix of the old-style central management with a decentralized user base creating content. A DAO would have a computer code that runs the rules and decisions instead of a central management team at the top. The people in the decentralized network would decide on the rules, form a consensus and create something called a smart-contract.
Basically a set of computer coded rules that a computer would execute later when needed. In other words, a DAO is like a democratic company that’s automatically run.
“A DAO is meant to be decentralized, so it’s on the blockchain, there’s no central management involved. Autonomous, in that the code will run the transaction. It’s meant to be some form organization. The difficulty from a legal perspective is that no one at this point in time has been able to classify exactly what the DAO is. It may be that in a few years time DAOs will become so popular that legislators will need to create special legislation that recognizes what a DAO is.”
Let’s take a look at a basic hypothetical example of how this might work, but just with one smart contract. So say in the future, when the blockchain is readily established, you want to buy a used Tesla. Traditionally, you’d go to a dealer or an individual, you’d make sure the details in the history of the car are correct. You’d hassle for a price with the seller, take some money out from the bank, transfer the money, sign a lot of paperwork, wait for the money to clear, and then you can finally have the car. This can take a few days to do.
Now, with the blockchain, using a smart-contract, you could have this order all carried out in real-time. The car would be uploaded to the blockchain so that you would already know that the details are correct because trust is built into the system.
You could buy this car with cryptocurrency that’s attached to your bank account, and all of the ownership and other details about the car is executed in a smart-contract, so everything would happen in a matter of minutes instead of days.
Your ownership of the car is now attached to your digital currency on the blockchain. The global records in the blockchain system are now updated so that everybody in the system now knows that this car was sold to you.
You can take all of this a step further by linking up different smart-contracts into an organization, similar to Airbnb or Uber, so the whole process is automatic, with rating systems of service and customer satisfaction, etc. Although that setup is a sharing economy model, according to Dr. Adrian, a group of smart-contracts can easily be arranged in this way.
I hope you’re beginning to see the importance and potential of such technology. But it’s not all roses. Right now there are still some downsides. Malicious smart-contracts for example. These can theoretically be designed to clog up the entire system. In addition, if there are actual coding errors within a decentralized autonomous organization itself, this could create massive problems.
Another thing is that the blockchain is also permanent: every record of a transaction is stored there for all time and this doesn’t sit well with those concerned about privacy and the right to be forgotten.
Dr. Adrian did state that there are going to be some entities called Oracles, and these guys have special clearance to make edits on the blockchain, but overall this is still an issue that needs further looking into.
While everyone’s focused on the buzz of artificial intelligence, I really think that the blockchain is a dark horse, that’s going under the radar, mainly because it’s not as romanticized and the concept is a little bit harder to grasp.
Regardless, blockchain is the next step of the internet. A complete overhaul of how things in our world are going to be recorded, organized and run. In the end, I personally think it’s going to be a combination of artificial intelligence and the blockchain that will be our future.