When people talk about blockchain, a cryptocurrency like bitcoin is often the first topic to come up. However, bitcoin is just one application of an underlying technology that not only has the potential to transform the way we do business, but the way we interact in society as a whole.
What exactly is blockchain?
In simple terms, blockchain is an example of Distributed Ledger (DL) technology, where any kind of transaction, whether it is an agreement, sale or verification of identity, is recorded in a transparent, accessible and irreversible way. In other words, each transaction can be considered as a “block” which is linked together by transactions or “chains”, where it’s possible to see all of the the links between the “blocks”.
To give a more concrete definition: “Blockchain is a distributed ledger, essentially a type of decentralized database that stores a secure and permanent record of transaction data.”
To expand on this, blockchain is a decentralised, peer to peer application that breaks down our ideas about structured and centralised power, in that value can be exchanged without having to rely on a third party to authorise the transaction. Another powerful aspect of blockchain is that all data that is entered into a blockchain is immediately updated across the network, as opposed to a private ledger. Below is an infographic explaining how it works:
The greater social impact of the blockchain economy
Blockchain definitely isn’t just about bitcoin or exchanging money, it’s about making transactions in a different way, which opens up a whole new realm of regulation and potential social impact.
Imagine what a more traceable record of transactions would mean in practice for money laundering, corruption and shady deals? While the presence of a technology doesn’t mean that people won’t find ways to get around it, the way in which blockchain transactions are validated or “mined” changes things, because it creates an alternative to our current monetary system, where transactional data is siloed, fragmented and takes time to process.
The current weaknesses of blockchain technology
Blockchain technology itself is groundbreaking in theory, but in practice there are some issues that prevent it from being taken up at mass scale, at least for now.
If we look at bitcoin for example, there just isn’t enough computing power for it to be infinitely scalable at this point in time, without enough capacity to cope with an exponential rate of transactions.
Blockchain is also not always properly understood, which has led to a lot of people cashing in on the hype before it has actually become fully entrenched in society, a phenomenon which many people believe may lead to a bubble that will soon burst, similar to what happened with the Dot Com crash in the late 1990s.
How does the blockchain economy apply to your business?
Cryptocurrencies like bitcoin are the most popular application of blockchain technology right now because they appeal to people and businesses who want to exchange money without the costs and limitations of traditional banking. While many banks have seized the opportunity to benefit from blockchain technology by integrating with wallets and setting up cryptocurrency payment integrations, a true blockchain economy will essentially take away the need for a bank, which is very exciting, or threatening, depending on which way you look at it.
At the moment, banks and other financial institutions are more focused on single applications of blockchain technology, which includes being able to quickly and efficiently verify stock transactions (which take a while). Other businesses, for example, in supply chain management, are setting up “smart contracts”, which involve automated transactions that take place when the terms of the smart contract have been met, for example, a payment that takes place once a delivery is confirmed.
These kinds of use cases have great potential for general data storage and accessibility, as being able to trace information will be so much easier if transactional records are stored and updated in a more uniform way. In the cybersecurity industry, blockchain technology also prevents fraud as there is no central database to hack into, as information shared on the blockchain is stored across a shared network of irrefutable records.
How should a business prepare for the blockchain economy?
The functionality of the blockchain is based on complex computer science, but that doesn’t mean that the average person, or business, can’t become clued up about how the blockchain is currently being used, and the effect that its uptake will have in the future.
As with any kind of new technology, adoption often comes with a lot of fear and angst, so staying knowledgeable about growing trends can help you to set your business apart, and prepare for any changes that might affect you.
At SovTech, we’re excited about the transformative potential of new technologies, and would love to work with you to break down the hype and help you to apply these to your business.