By Giovy Drysdale-Anderson
Editor, Economics & English Student
When Bitcoin first launched, few had heard about the world’s first digital currency functioning on a peer-to-peer system. But since its launch by Satoshi Nakamoto on October of 2008, it has played a major role in propelling us into the age of Fintechs. The various changes to traditional industries due to innovative technology are part of what is still an ongoing phenomenon, and Blockchain—undoubtedly Bitcoin’s greatest contribution—is at the forefront of it. Bitcoin may have changed the way we think about currencies and exchange rates, but when it comes to the technology behind the digital currency, there may be even more than meets the eye.
At the heart of its success is the problem it addresses: the lack of trust among participants of complex transactions. Traditionally, intermediaries (or banks, in a financial context) provide this trust, but at a high monetary and bureaucratic cost, slowing down processes and demanding a hefty fee. Blockchain technology seeks to solve this problem by generating confidence and transparency in transactions involving players who perhaps do not even know each other. How? The answer is two-fold: through a complex method of encryption and a distributed ledger.
As its name suggests, Blockchain consists of digital records of transactions that form ‘blocks’ of information. These are cryptographically bound together to create a ‘chain’. The form of encryption that backs up Blockchain is known as “hashing” and is irreversible. It dramatically minimizes fraud, diminishes the number of errors in encryption and allows these to be easily located if they do occur. With such a sophisticated method of encryption, Blockchain enables the creation of an unforgeable record of transactions.
Operating on a decentralized network, Blockchain enables data to be stored across many computers, rather than in a single place. In this way, it stores information more securely, because a distributed database is much harder to hack than a centralized one. In short, it forms a global platform that allows for a digital peer-to-peer exchange of data, transactions, agreements and contracts at a level of security and transparency that has never before been possible. But what is it capable of, and what changes will it bring to everyday life?
This may mean that the future of transactions and banking will be much faster, easier, and cheaper than before, as well as one of greater transparency.
In the financial world, there is no question that Blockchain is producing a significant impact simply by removing the need for manual processing and eliminating the role of third-party intermediaries. Procedures speed up while costs are lowered. Peer-to-peer marketplaces are arising and thriving. Local and cross-border financial transactions are now as easy and quick as sending a text. This may mean that the future of transactions and banking will be much faster, easier, and cheaper than before, as well as one of greater transparency.
Some have predicted Blockchain will transform the financial industry like the internet did to media, dubbing the emergence of Blockchain the ‘renaissance of money’. But while Blockchain is clearly impacting the financial sector, what perhaps makes it such a valuable technological development is that it can be used in ways that extend beyond Fintech and cryptocurrencies.
Last summer, Sweden began testing the application of the technology in its housing market. The project, which is due to go live by the end of this month, is a result of the joint efforts of the Swedish National Land Survey and the Blockchain start up Chromaway, and relies on the support of a Swedish telephone service provider and an international consulting firm. Since both buyers and sellers are able to track developments in real time, as is the case with any transaction conducted on the Blockchain platform, the once complicated process of land registration becomes much simpler for all parties involved.
Some have predicted Blockchain will transform the financial industry like the internet did to media, dubbing the emergence of Blockchain the ‘renaissance of money’.
If the project is successful, it is very likely that other countries will consider similar ventures. In particular, Blockchain has tremendous potential in developing countries facing issues such as corruption or an unstable political environment. In situations where a centralized database is not trustworthy, the technology allows individuals to access key information from distributed ledgers while safeguarding that information to a very high standard.
Many governments are already looking at ways in which Blockchain could help with regulation, or act as a solution to tax fraud. The Estonian tech firm Guardtime has developed its own version of Blockchain, called Keyless Signature Infrastructure (KSI), to allow the government to manage and protect citizen’s data across online services. Meanwhile in Estonia, the Nasdaq Stock Market has been testing the use of the technology for e-voting on its Estonian exchange.
In an entirely different context, Blockchain has also been applied to the market for diamonds. Everledger, a tech start-up founded in 2015, has used the technology to register 850,000 diamonds to a Blockchain database. By analysing more than 40 features of a diamond, from its colour to its clarity, Everledger assigns an ID to each diamond and stores the information using Blockchain. In this way, the technology opens up the entire history and value of each diamond to consumers and sellers while guaranteeing that the information is preserved and guarded.
Acting as a system of warranties, Blockchain has made it easier for diamond companies to comply with mandatory regulations, such as the Kimberley Process, verifying whether rough-cut diamonds were used by militias to fund conflicts. By monitoring the market for diamonds more closely, the hope is that Blockchain will bring the trade of conflict diamonds to an end.
Despite all these innovative applications, experts in technological developments predict that Blockchain has potential for even more. Enabling the verification and recording of the various stages of development of a product, software, or program, Blockchain can bring improved quality and reliability in a very broad and far-reaching sense. Whether in government, cybersecurity, regulation, or telecom, a higher level of security and transparency of data can be achieved with Blockchain.
Naturally, companies across industries are already creating their own versions of the technology and looking to launch pilots. At this very moment, CTOs worldwide are asking themselves how Blockchain will affect their sectors and are adapting their business plans to the predicted impact of this new technology.
Some have called Blockchain the internet’s ‘public database’, but will its impact be as revolutionary as that of the internet itself? By developing the mathematics behind the technology, Nakamoto has already done the hard part. And companies are already applying the technology to their particular industries. What remains is to explore its potential in tackling some of the big social and environmental issues of our time. Only time will tell whether looking back we will view Blockchain as simply another upgrade from previous ways information was stored, accessed and distributed, or if it will be considered a truly revolutionary development.
Featured image & secondary images by Davidstankiewicz/Wikimedia Commons