Blockchain is not simply the latest buzzword, it’s a revolutionary technology with countless applications. In very simple terms, Blockchain technology is a distributed database with the ability to capture and store registries of transactions and assets across decentralized peer-to-peer networks.
The history of all transactions on blockchains are secured via cryptography and locked-in cryptographic blocks over time to create an unforgettable, distributed and immutable record of all transactions taking place on these networks.
How Does Blockchain Technology Work?
The best way to understand blockchain technology is by taking a look at how traditional ledgers work. Banks and governments have used ledgers for centuries to maintain databases of transactions and records of land ownership. Both the bank and the government have a central authority managing changes to their records. This traditional centralized system, therefore, requires a middleman trusted by all users in full control over the system. It’s black-boxed, meaning that the ledger and its data are not fully visible to its users. Furthermore, system vulnerabilities, of which there are many, make traditional centralized systems unsafe against hackers who could obtain the data of millions of people through a single attack.
Blockchain technology offers a similar record keeping functionality. However, it does not have a centralized architecture. This means even if hackers find vulnerabilities—which is unlikely—they would need to attack millions of databases to obtain data on millions of people. Now, you may be wondering how blockchain technology is made possible without a central authority to counter-check the legitimacy of transactions and records. This challenge is addressed by decentralizing the ledgers and giving each user a copy of the same.
In this system, anybody can request to add a transaction to the blockchain, but this can only be accepted if all users agree the transaction is legitimate. Each new transaction is captured and recorded together with other new transactions as a ‘block’ which is then added as the latest link to the chain of other transactions.
Potential Use-Case Applications of Blockchain Technology
Blockchain technology has countless application use-cases in the modern world, some of which have not even been perceived at the time of writing. Blockchains create affordable, fast, secure and connected public records for people to use in many areas such as finance, insurance, voting, law, security and more.
Blockchain technology is particularly suited to areas where it is important to know the histories of ownership. They can be used to manage supply-chains, resolve video and music piracy and manage welfare payments. For example, Elon Musk’s vision of a Universal Basic Income for billions of people could only be realized successfully using blockchain technology.
A report by the European Parliamentary Research Service notes that this kind of technology is bound to make systems more transparent and democratic as it shifts some control of technology from central entities to individuals. More specifically, here are some of the areas that are likely to be impacted by blockchain technology:
Currencies: currencies are just some of the possible applications of this technology. However, they are so far the most popular. Cryptocurrencies such as Bitcoin—which is so far the most popular virtual currency—run on blockchain technology. In the financial world, banks, insurance companies and other institutions will hugely benefit from this cheap and secure technology.
Digital Records: blockchain technology could be used to manage digital rights associated with digital products. This will help tackle forgery and piracy in the music, video and film industry. It could help to capture record and trace the ownership history of digital content. You can easily use this technology to register sales, donations, loans and other forms of transactions and transfers of digital artifacts.
E-voting: votes are usually recorded, counted and managed by a central authority. Blockchain technology would give this power to voters themselves by enabling them to have a copy of the voting record. There is no way to change historic votes since the system logs and verifies all records in a transparent manner.
Supply Chain Management: Blockchain-based systems have a great potential to improve our supply chains by providing means for registering, certifying and tracking the process at a remarkably low cost. All goods will be uniquely identified and transferred through blockchain with each individual transaction verified, time-stamped and encrypted in a transparent process.
Decentralized Autonomous Organizations (DAOs): this can be thought of as sets of governance rules automatically enforced and executed via the blockchains. DAO could play a mediating role between various parties in a decentralized but human-controlled organization. It might also consist of a fully autonomous organization controlled entirely via algorithms.
Additional Use Cases of Blockchain Technology
- Financial Records, Instruments, and Models
Public/Private equities, Derivatives, Bonds, Commodities, Trading records, Spending records, Mortgage/Loan records, Micro-finance, Crowd-funding, Servicing records and Micro-charities to name a few.
- Public Records
Land titles, Vehicle registries, Regulatory records, Business licenses, Criminal records, Voting, Passports, Birth certificates, Health/Safety inspections, Death certificates, Court records and Non-profit records to name a few.
- Private Records
Smart contracts, Traditional contracts, Wills, Signatures, Escrows, Trusts, GPS trails and Company registrations to name a few.
- Physical Asset Keys
Home/Apartment keys, Hotel room keys, Vacation home, Timeshare keys, Car keys, Leased car keys, Rental car keys, Locker keys, Safety deposit box keys, Betting records and Fantasy sports records to name a few.
Coupons, Patents, Trademarks, Software licenses, Copyrights, Video Game licenses, Domain names, Music/Movie/Book licenses and Online identities to name a few.
- National/International Security
Chains of Command, Military records, System architecture, Source-code data, National utility resources and Military asset tracking data to name a few.
Blockchain technology will undoubtedly add a powerful new layer to existing Internet infrastructures. It is set to take over the connected world and completely transform how people go about their daily business. As more tech giants lean their manpower and resources towards blockchain technology research, more and more countries and organizations are positioning themselves to take advantage of this exceptional technology.
Two good blockchain innovators out of the many examples include Humaniq, a fintech startup—I am the Chief Digital Officer—working to provide financial inclusion services to two-billion unbanked people worldwide, and Slock.it, an IoT (Internet of Things) startup creating fully automated smart objects. Both of the aforementioned startups are using the Ethereum blockchain.
Although it is good to take lessons from the past and be prepared in terms of intelligent research, one is either an innovator or a laggard. Which one will you be?Opinions expressed here by Contributors are their own.