Blockchain, the technology behind cryptocurrency such as Bitcoin that has been increasingly floating around technology news sites for the past year, is a technology that is at times shrouded in mystery. It really shouldn’t be.
When it comes down to it, blockchain is simply a way to keep track of things. It’s a distributed ledger – every party has a copy and the master document is actually all of the copies combined. The New Web has a great description in a recent article:
In simplest terms, the blockchain is a distributed public ledger. This means that instead of having a centralized database and controlling entity for transactions, all data is encrypted and stored on each and every node connected to the network.
There are as many copies of the ledger itself as the number of nodes in the network. All “blocks” in the chain contain records of transactions. This kind of data architecture has revolutionized the process of verification and transfer of ownership. With no centralized control over verification and proof of ownership, there can be no single point of failure.
Any transaction must be verified by a majority of the existing blocks; otherwise, if the data is not simultaneously effected (such as, if a malicious hacker attempts to revise data on a single block), these are rejected, and the system automatically adjusts itself. This process thus also revolutionizes security and preservation of data.
Got it? Good.
At this point, it’s easy to see how blockchain can affect the financial sector. Instead of notaries and governing bodies and miles and miles of record keeping by each party, blockchain allows all transactions to be instantly updated and fully secure in a decentralized ledger. Every party has equal access and equal ability to alter the ledger. Not to mention blockchain’s roots in the finances of cryptocurrency – you can see why the financial district is an easy leap to make.
However, The Next Web points out that blockchain can be used for any type of record keeping. In fact, Ethereum comes with a computing platform that allows developers and users to run their own applications used blockchain. They’re using it in some interesting ways. Take contracts for example:
One big potential use case scenario for the Ethereum blockchain involve smart contracts. Because of the decentralized and immutable nature of transactions, this becomes an ideal venue for executing agreements between two parties. A smart contract itself can execute certain scripts or code, or release tokens as proof-of-stake. This has numerous applications. For example, transactions across smart electricity grids can be authenticated and paid for through the blockchain.
Blockchain has potential in various industries. We’ve covered blockchain’s emergence in the maritime industry. There’s also the SolarCoin Foundation, which is using blockchain to help households and businesses produce solar energy. Some experts are even predicting that blockchain could end poverty.
Blockchain isn’t just a financial tool. It’s a tool for all transactions. It can keep track of labor hours, agreements between parties, shipments and receipts – it can keep track of anything, really. The only downside I see is that a decentralized ledger will reduce the potential for shadiness between parties, and that’s only a downside if you’re a shady party.
It will be interesting to see how blockchain affects businesses, and business in general, moving forward. I challenge our readers to consider how a decentralized ledger that is open, transparent, and secure can be utilized by your institution. Within finances or otherwise.