The blockchain is one of the most genius inventions – by a person or group of people known by the pseudonym, Satoshi Nakamoto. It has now evolved into something greater, and the question being asked everywhere is: What is Blockchain?
A blockchain is, simply put, a time-stamped series of an immutable record of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) are held together using cryptographic principles (i.e. chain).
So, why is it said to be having industry disrupting capabilities?
The blockchain network has no central authority — it is a purely democratized system. Being a shared and immutable ledger, the information in it is open for anyone and everyone to see. Hence, anything built on the blockchain is transparent and everyone involved is accountable for their actions.
A blockchain carries no transaction cost. The blockchain is a simple way of passing information from one user to another in a fully automated and safe manner. The process starts with the creation of a block by one of the users. This block is verified by millions of computers distributed around the net. The verified block adds on to a chain, which is stored across the net. This creates a unique record with a unique history. Falsifying a single record would falsify the entire chain in millions of instances which is virtually impossible.
The blockchain can transfer and store money as well as replace all processes and business models which rely on charging a small fee for a transaction.
Even contemporary entrants like Uber and AirBnB are vulnerable to blockchain technology. All that is needed is encoding the transactional information for a car ride or an overnight stay, and that builds a perfectly safe way that disrupts the business model of the companies which have just started to challenge the conventional economy. It not only cuts out the fee-processing middleman but also eliminates the need for a matchmaking platform. One can charge for anything in any amount without worrying about third parties cutting into profits.
Blockchain can make selling recorded music profitable for artists all over again by cutting out music companies and distributors like Apple or Spotify. The music that is being bought could be encoded in the blockchain itself, making it a cloud archive for any song purchased. The amounts charged could be so small that subscription and streaming services will become irrelevant.
Ebooks can be fitted with blockchain code. That way, instead of Amazon taking a cut, and the credit card company earning money on the sale, the books would circulate in encoded form and a successful blockchain transaction could transfer money to the author and unlock the book, and that means transferring the entire sum of money to the author, not just meager royalties. This could be done on a book review website like Goodreads, or on some other website. The marketplace Amazon is then unnecessary. Successful iterations could even include reviews or other third-party information about the book.
In the financial world the applications are more apparent and the seditious changes inevitable. Blockchains can change the way stock exchanges work, loans are bundled, and insurances contracted. They can eliminate bank accounts and practically all services offered by banks. Almost every financial institution could be forced to change fundamentally or go bankrupt, once the benefits of a safe ledger accompanied by zero transaction fees are widely understood and administered. After all, one of the main sources of revenue of the financial system is taking a small cut of your money for the privilege of facilitating a transaction. Bankers will no longer be gatekeepers of money and will be left with advisory roles. Stockbrokers will lose the opportunity to earn commissions and the buy/sell spread will disappear.
The blockchain has gained so much admiration because:
- It is decentralized since it is not owned by a single entity
- The data is cryptographically stored inside
- No one can tamper with the data that is inside the blockchain since the blockchain is immutable
- One can track the data if they want to since the blockchain is transparent
What new business applications will it bring to us?
Distributed ledgers allow the coding of basic contracts that are meant to execute when specified conditions are met. At the current level of technological development, smart contracts can be programmed to carry out simple functions.
Crowdfunding initiatives like Kickstarter and Gofundme are contributing to the emerging peer-to-peer economy. The popularity of these sites clearly indicates that people want to participate in the product development process. Blockchains take this interest to another level by creating crowdsourced venture capital funds.
By making the results completely transparent and accessible by the public, distributed database technology aims to bring full transparency to elections or any other kind of poll taking. It even enables organizational decision-making to happen on the blockchain. This practically means company governance becomes fully transparent and verifiable while managing digital assets, equity or information.
Supply chain auditing
Consumers want the ethical claims companies to make about their products to be real. Distributed ledgers provide a way to certify the backstories of the things we buy as genuine. The blockchain-based timestamping of a date and location fosters transparency— for instance, on ethical diamonds— corresponding to a product number.
There are clear benefits of decentralizing file storage on the internet. Distributing data throughout the network enables the protection of files from getting hacked or lost. Inter-Planetary File System (IPFS) makes it easy to conceptualize how a distributed web might operate. IPFS removes the necessity of centralized client-server relationships (i.e., the current web). An internet composed of totally decentralized websites has the ability to speed up file transfer and streaming times. This kind of upgradation is not only convenient but also necessary due to the web’s currently overloaded content-delivery systems.
It has been proved time and again that the crowdsourcing of predictions on event probability has a high degree of accuracy. The unexamined biases that distort judgment are canceled out due to the averaging of opinions. Prediction markets paying out depending on event outcomes are already active. Blockchains are a “wisdom of the crowd” technology that will no doubt find other applications in the years to come.
Protection of intellectual property
As is well known, digital information can be infinitely reproduced — and distributed widely thanks to the internet. This has provided web users with a goldmine of free content globally. However, copyright holders have been losing control over their intellectual property and as a consequence suffering financially. Smart contracts can protect copyright and automate the sale of creative works online which would eliminate the risk of file copying and redistribution.
Internet of Things (IoT)
It is the network-controlled management of certain types of electronic devices such as the monitoring of air temperature in a storage facility. Smart contracts enable the automation of remote systems management. A combination of software, sensors, and the network makes the exchange of data between objects and mechanisms possible. This results in an increase in system efficiency and improvement of cost monitoring.
AML and KYC
Anti-money laundering (AML) and know your customer (KYC) practices have a strong chance of being accommodated in the blockchain. At present, financial institutions are required to perform a labor-intensive multi-step process for each new customer. The cost of KYC could be reduced through cross-institution client verification, and there could be an increase in the effectiveness of monitoring and analysis.
The possibility of increased efficiency in share settlement makes a strong use case for blockchains in stock trading. When performed peer-to-peer, trade confirmations become almost instantaneous (as opposed to taking three days for clearance). This potentially means intermediaries — including the clearing house, auditors and custodians — are eliminated from the process. Many stock and commodities exchanges, including the Australian Securities Exchange (ASX), the Deutsche Börse (Frankfurt stock exchange) and the Japan Exchange Group (JPX) have already begun prototyping blockchain applications.