If you’re like most people, you’ve probably heard of cryptocurrency. Bitcoin, Ethereum, Lightcoin, Ripple… The cryptocurrency market is filled with digital coins, some more volatile than others, with extremely high highs, and increasing lows.
What you may not have heard as much about is the technology behind cryptocurrencies: Blockchain.
I first started researching cryptocurrency and blockchain technology in depth about a year ago. I interviewed investors and scientists that were involved in the industry. I found it quite fascinating, but complex, especially for someone like me, who has a background in Psychology and English, not programming or computers.
What was obvious to even me, however, was the potential of blockchain technology. Not just on currency exchange and the financial industry, but on the tech world as a whole.
Let’s talk about the basics of blockchain, called by Harvard Business Review ‘the quiet revolution’, and then discuss possible applications you can expect to see in the future.
What is a blockchain?
A blockchain is essentially a digital ledger. This ledger is designed to be resistant to modification. That means once an entry is “filled”, it cannot be altered.
Each entry is verified by a network, and since the blocks or entries are connected, one cannot be altered without altering the entire chain.
What is revolutionary about blockchain?
For the first time, there is a way to turn a virtual object into a unique digital asset.
How does it work? I once had it explained to me in very simplified terms that helped me to understand.
I’ll explain it in the same way:
I have an apple. I give it to you. We both know without a doubt that the apple is now in your possession. What about a digital apple? If I send it to you, over email or in a Facebook post, how do you know I didn’t send a copy to someone else? You don’t know. Unless we keep track of that exact digital apple. How could we do that? We could keep track in a ledger.
But couldn’t someone make changes to that ledger? Not if that ledger was open source, and thousands of people had the ledger themselves. And every time another exchange is made, it is checked against all of the thousands of ledgers held by people all over the world. It would be very difficult to cheat the system, right?
That is a very simplified explanation of how blockchain works. Every transaction is checked against the thousands of ledgers held by people all over the world.
Key characteristics of blockchain
1. The ledger is open source. That means it is public and maintained by many people. The total number of apples are listed within the ledger, and each apple assigned a “transaction number”. Each unique number was defined in the public ledger at the beginning. I know the exact amount that exists. Within the system, I know they are limited (scarce).
2. When I make an exchange I now know that digital apple certifiably left my possession and is now completely yours. The exchange, or transaction, will be updated and verified by the public ledger.
3. Because it’s a public ledger, I didn’t need a third-party to make sure I didn’t cheat, or make extra copies for myself, or send apples twice. Everyone saw the digital apple leave my possession, they verified and noted it on the ledger.
According to authors Don and Alex Tapscott of Blockchain Revolution, “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” This is the network of ledgers we talked about above in our apple example.
Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.
Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
Where can you expect to see blockchain being used?
The applications for blockchain are only just starting to be realized.
Initially, banks recognized the importance of having a virtually indestructible digital ledger of transactions. They’ve been researching ways to use the technology. Cryptocurrency platforms and ICOs sprang up all over the world, causing a huge fluctuation in the market and rising skepticism of the technology.
However, the uses for blockchain are far greater than the digital coin industry.
Using blockchain is a great way to create value in a digital object. Let me give you an example. CryptoComics is a marketplace for comic book sellers and buyers that uses blockchain to track each comic issue published on the platform. This makes “first editions” published digitally retain their value in the same way a print copy would, since that edition will be assigned a permanent space on the blockchain.
Where can blockchain revolutionize industries?
Below are a few more examples of industries that could benefit from the application of blockchain technology.
Voting: Verifiable voting by smartphone or other device could be possible using the blockchain technology.
Automotive: It would be simple for sharing ownership of autonomous vehicles using blockchain to keep track.
Licensing and royalties: Digital assets management would become simple and easy to track. Like in the comic book publishing example above, comics published on the blockchain cannot be sold without a percentage going to the creator.
1. Increased transparency and traceability
2. Faster transactions
3. Elimination of intermediaries
4. Lower costs
What are some of the barriers to applying blockchain?
1. Regulatory issues
2. Collaboration challenges
3. Complex technology
4. Lack of trust
Blockchain: The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.
Currently, blockchain is being primarily used in the digital currencies market, but companies are starting to apply the technology to other areas.
In the future, we might see blockchain used in everything from mobile voting to autonomous cars.
The value of blockchain is in its transparency, it is robust (difficulty in hacking / altering records), faster and lower cost than alternatives.
Some of the barriers we see is the lack of regulation since the technology is so new, difficulty in collaboration, the complexity of the technology makes it difficult to apply and lack of trust from the general public.
If the barriers can be overcome, which I believe they will, just like any new technology, the potential for blockchain is truly amazing and revolutionary.