What is Blockchain?
The global economy is built on a foundation of exchange – exchange of funds, information, resources. But the problem with ethical trade is avoiding fraud or theft. Society has developed ways to increase knowledge about trading partners so you can make informed decisions about whether or not you can trade safely with them.
You do this all the time – you check the seller rating of a vendor on Amazon before purchasing their product. You sign multiple copies of a contract so there is undeniable proof of an agreement. We build institutions to create safeguards around the exchange of value. According to blockchain entrepreneur and researcher Bettina Warburg, the advent of blockchain technology allows us, for the first time, to “lower uncertainty not just with political and economic institutions, like our banks, our corporations, our governments, but we can do it with technology alone.” 1
What is blockchain?
Blockchain can be explained simply as a digital ledger system. It can be used to track not just financial transactions, but any transaction of economic value, making it possible to share documents and personal information as well as cryptocurrencies. What makes this system revolutionary is its fully distributed ownership rights. The information in the blockchain ledger is not shared to a network from one single access point, but hosted locally on each individual device, making the system virtually incorruptible.
Technology Futurist Ian Khan explains, “The most critical area where blockchain helps is to guarantee the validity of a transaction by recording it not only on a main register but a connected distributed system of registers, all of which are connected through a secure validation mechanism.” 2
How blockchain works
When a transaction is requested on the system, it is broadcast to a P2P network consisting of a number of interconnected computers, called nodes. Each of these nodes checks and validates the transaction for consistency across the network. Once validated, the transaction is grouped with other transactions to create a block of data for the ledger. Every ten minutes, these blocks are grouped, logged, and linked in a chain with other blocks – a blockchain. Once logged, this chain is permanent and can’t be altered.
Because the ledger is fully distributed across the network, it is virtually incorruptible. To make a change in the ledger, you would have to log the change on every node across the entire network simultaneously. Otherwise, the network recognises one record doesn’t match the rest and it flags the transaction as corrupt. Every node on the network can access and make changes to the system simultaneously. Hacking the blockchain is like trying to sneak through a single gate that’s being guarded by hundreds of watchdogs; it can’t be done.
Blockchain specialist William Mougayar explains this using an analogy with Microsoft Word and Google Docs. Our current system of banking works like Microsoft Word – when two parties try to edit the same document, the system locks one party out while the other is making changes. Two parties can’t view the same document at the same time. Banks do this all the time, temporarily locking the system while making transfers and adjusting balances.
Blockchain, however, is like Google Docs. All parties can view and edit the same document simultaneously. The information is available to them at all times.
As Warburg explains, “the very thing that keeps the blockchain secure and verified is our mutual distrust. So rather than all of our uncertainties slowing us down and requiring institutions like banks, our governments, our corporations, we can actually harness all of that collective uncertainty and use it to collaborate and exchange more and faster and more open.”3
How will blockchain technology affect businesses and industries?
By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet.4 The system was originally devised for the exchange of cryptocurrencies like Bitcoin, but there are a plethora of other potential uses for the technology.5
Payment across borders
When employing remote workers or doing business in a global marketplace, business owners no longer need concern themselves with losing money on cross-national transactions. With no intermediaries slowing down the transfer of funds between banks and charging extortionate transaction fees in the process, business owners can leverage blockchain technology to transfer funds securely and directly to any vendor worldwide, instantly and with extremely low fees.
Cybersecurity
While the blockchain itself is public, the data is encrypted for security to prevent it being changed without authorisation. The growth of blockchain technology has created a growing demand for advanced cryptography and cybersecurity specialists.
Networking and the Internet of Things
When implemented as a central ledger for a large network of devices, blockchain technology allows the Internet of Things to operate more efficiently. Devices on the same network can communicate with one another directly instead of routing their updates through a central location.
Insurance
Blockchain can be used to manage trust and verify data for insurance contracts. When personal insurance information is stored on the blockchain and claims are processed through the network, it reduces the possibility for fraud.
Charity
Using blockchain technology to manage charitable donations ensures funds make it into the right hands, by removing the middleman and making transactions public.
Voting
Elections can be made fair, democratic, and insusceptible to rigging by using blockchain to track voter registration and identity verification. Blockchain also provides an irrefutable record of all counted votes, making it impossible to fake or tamper with results.
Identity tracking
Your passwords might soon be a thing of the past as blockchain technologies make digital identity tracking more secure. Blockchain-based authentication systems use incorruptible identity verification through use of the encrypted public keys. These advances can be applied across a range of identity applications, from email and online banking all the way to passports and birth certificates.
Healthcare
Using blockchain technology allows medical professionals to share medical records and patient information seamlessly. This ease of access can improve the speed and accuracy of diagnosis, ensuring the best possible patient care.
Online Music
Blockchain-based solutions in the online music industry can help artists to get paid directly by their fans, removing the percentage-grabbing record company from the equation.
Real Estate
In an industry where public documents and contracts are regularly shared between parties, blockchain technology can ensure transparency and reduce fraud. Blockchain applications like Ethereum allow for the development of smart contracts, or computer code which facilitates the exchange of value, monetary or otherwise. “When running on the blockchain a smart contract becomes like a self-operating computer program that automatically executes when specific conditions are met. Because smart contracts run on the blockchain, they run exactly as programmed without any possibility of censorship, downtime, fraud or third party interference.”6
Your Industry
If your business relies upon trade, data, or technology to thrive, you can also leverage blockchain to prepare for future success – ensuring you not only adapt to this revolutionary change, but use it to your competitive advantage.
Equip yourself for the future of blockchain with the Oxford Blockchain Strategy Programme. This six-week online course will provide you with a comprehensive understanding of blockchain technology, how it works, and how it can help you future-proof your business strategy.
