Distributed Ledger technology, often called DLT or Blockchain is the driving force behind the hype created by one of its prodigal sons, Bitcoins. In the past decade or so, there have been such times that have driven people into a form of virtual insanity leaving everyone mesmerized but confused. As for Blockchains, it has only just begun. Blockchain is fast becoming a symbol of the fourth industrial revolution, the digital transformation that is now upon us. Techies, IT professionals, financial institutions and even the corporates are buzzing about the potential which Blockchains can unravel. Even small businesses are finding ways to unearth whatever they can using Blockchains to maximize their profits and work more independently. So, what is this technology in its simplest form and how can it simplify our lives?
1. What is Blockchain technology?
Blockchain is a technology where a group of distributed computing systems can compute the authenticity of a transaction in a decentralised manner. Wait.. What? Well, imagine a bank. What does a bank in essence do? It tracks your debits, credits and other transactions and works as a Ledger (you may want to Google that). You may be inclined to think what good would replacing a bank do. Well, the transactions recorded by banks are done in a centralized manner meaning, no one except the banks have a record of it. This could be catastrophic as a glitch in the banks’ servers could lay your finances bare and vulnerable. This is exactly why Blockchain technology was experimented during the financial crisis of 2008 and is endangering established institutions across diverse fields. Decentralized trust and authentication are the two pillars on which this technology stands.
2. But, how does it work?
Blockchains use complex mathematical functions to create a definitive record of who owns what, when on a decentralised network. Each computer system on the Blockchain ecosystem has access to the data flowing in and out of the specific blockchain ecosystem. In other words, blockchain keeps a ledger – which businesses can also use to track credit, debit and other transactions. While most are exploring the digital currency ecosystem of Blockchain (i.e. Bitcoins), there are some who are far more interested in the overall efficiency of the technology as a whole. Bitcoins are actually just a sub part of blockchain, a currency related implementation of it. With the computing capabilities and software solutions we have, we could definitely think about exploring and integrating blockchain to solve systemic solutions – cryptocurrency could be one of them. Smart contracts are one of the cleverest bits that the blockchain technology unravelled. Blockchain software codes serve as an agreement or a contract that the blockchain ledger uses to validate using certain conditions set in advance. A copy of such a contract is encrypted and sent to each participant on the blockchain ecosystem which agrees with the decentralized trust on offer through this technology.
3. Who can benefit from Blockchain?
It doesn’t stop at Smart contracts either. Some of the really big applications are around a Iot of machine to machine type systems which use distributive trusts to carry out transactions in a centralised manner. A lot of data keeping that is done can be fundamentally done in a more secure way using blockchains. This includes educational records, taxes, real estates and many more. Airbus hopes to use blockchain to monitor the many parts that come together to make a plane. United Nations in collaboration with Microsoft and Accenture is trying to build blockchain to verify digital identity which could be specifically useful to identify refugees. What Walmart found was even more astonishing! Using blockchain technology, Walmart was able to track the shipment history of two mangoes in 2 seconds. Using standard methods, it took more than 6 hours. Go figure!
4. Peer-to-Peer lending and Blockchains – Friends or Foes?
Finance was where Blockchain was conceived and it’s hard to see it trampling one of the pillars of the finance sector. Instead, Blockchain technology can be used for payment transactions enabling low transaction costs. Peer-to-peer lending platforms will be available to the global market thereby providing investors with attractive investment options and globalising the P2P lending ecosystem. This in turn increases the probability of investment on borrower profiles, making it a win-win situation for all. Also, blockchain considers routine customer administration visits as moot and removes the threat of illegitimacy among counterparties saving unparalleled amounts of cash.
That being said, there’s still a lot of work to be done to truly harness all that is on offer in blockchain technology. If we’re able to do that, we could be staring at a fascinating digital age in a few years from now.