Investments | 7/03/2018 |
7 min read
The future used to be represented by flying cars and moon bases. But as we’ve learned, true innovation tends to sneak up on us in more subtle way.
The internet didn’t arrive to any great fanfare, it was a series of slow and steady technical advances that gradually changed the way we work, live, and communicate. Blockchain has the same slow burn potential. And it’s only getting started.
What is blockchain?
A blockchain is like a digital database that everyone can see and update – but not edit or delete. When a transaction is completed, it becomes a block in the chain. The way it works means no one party has control; it’s decentralised. Each block in the chain contains a re-coded copy of a previous block. All of this is time-stamped, so it’s easy to verify information or transactions.
Why is this useful?
Transferring money, paying for goods and services, and banking in general is expensive. There’s a range of propriety programs and systems in place and they all need to sync up and trust each other before any money can be moved. That means money has to be held in escrow by third parties, which not only slows things down, it contributes to the various transfer fees charged.
Blockchain overcomes this. By replacing all these individual systems with a worldwide standard that anyone can view and verify it can speed up money transfers while also lowering the cost. An estimated $6bn per year in savings is expected by streamlining the clearing and settlement of transactions with blockchain.
So is it just a better way of banking?
While that’s one use, blockchain has lots of other potential when it comes to sharing information and data around the world.
Medical companies are looking at ways to use blockchain for medical records. By replacing all the individual systems used by hospitals and doctors around the world with a single standard it’s easier and quicker to share information.
Close to home, Australian environmental advocates have recently piloted a project to track tuna from where it’s caught, right to the end consumer. It’s being done by the WWF in conjunction with a fishing company and a tech company. The idea is that instead of fishing boats being able to fudge records, or third party monitoring bodies being vulnerable to corruption, each stakeholder verifies their point in the process in real time. And it can all be managed from a smartphone.
What about privacy?
While blockchain allows a network of computers to monitor and agree on a given value or change in value, it doesn’t actually reveal what that value may be – just that everyone agrees that it’s the same. Unless the parties using it have a password that allows them to look at the contents of a given transaction or record, the data is safe.
Where does Bitcoin fit into all this?
At its core Bitcoin is simply a digital currency that allows you to pay for goods and services. It is hosted on an open network of dedicated computers spread around the world. You can trade your regular US dollars, Euro or whatever you want for Bitcoin at whatever the given exchange rate is on the day.
Blockchain is the underpinning technology that maintains the Bitcoin transaction ledger and allows it to actually function. Since Bitcoin is the first widespread use of blockchain technology they tend to get wrapped up together, but they’re completely different things.
Blockchain is the platform – Bitcoin is the product.
Blockchains ability to facilitate safer and more secure transactions for a fraction of the current cost has plenty of real world applications and plenty of international interest.
As Vitalik Buterin writes on the etheriium blog, “[blockchain] allows a large number of interactions to be codified and carried out in a way that greatly increases reliability, removes business and political risks associated with the process being managed by a central entity, and reduces the need for trust.”
Industry leaders like Bob Greifeld, CEO of Nasdaq, have already pegged the emerging technology as “the biggest opportunity set we can think of over the next decade”.
It’s still early days, and the international politics of regulating a decentralised system are going to be intense. But the future has a tendency to sneak up on us, and blockchain represents a fundamental rethink about the way we share information. It’s not as tangible as a flying car, or a moon colony, but it can be just as transformative.
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