State of Blockchain
Blockchain was originally created in 2008 as the technology underlying the recently acclaimed digital cryptocurrency Bitcoin. Nearly a decade on, it is being hailed as one of the internet’s latest revolutionary technologies, with potential uses for it being explored and adopted at an unprecedented rate.
For those out with the tech community, understanding how blockchain works is incredibly complex — to the extent that start-ups have come out stating that they have received demands from top executives at global organisations to, ‘show me a blockchain’.
So, let’s break it down into layman’s terms: When using blockchain, every time an economic transaction takes place in the online marketplace, a ‘block’ is created to represent it. This ‘block’ is then added to the existing ledger of data entries (the ‘blockchain’). So, put simply, it allows data to be distributed onto an online ledger — hence the now commonplace terminology used for blockchain, ‘Distributed Ledger Technology’ (DLT).
The original value of blockchain lay in its ability to distribute, rather than copy, digital information. Take Google docs as a simple, common example of blockchain at work — Every time a member edits a document, identical records of that document are simultaneously updated and distributed to every member with access to the network via the blockchain. During this process, every alteration adds another block to the chain, which represents the newest version of the document. Then, since all members are accessing this updated version of the document via the most recent block on the chain, this is what they see on their screens.
So how has a means of distributing data become the new backbone of the internet?
More recently, adopters have found blockchain to be an exceptionally useful means of creating a permanent, unalterable record of economic transactions. Before blockchain, trust formed the pillars that supported the digital market, because trust was the basis under which unconfirmed transactions between unfamiliar parties transpired. But blockchain is knocking down the existing pillars and re-writing the rulebook of the digital economy. Since it is incorruptible and all-encompassing, it can effectively eliminate this need to rely on trust in the online marketplace.
Early pioneer of this blockchain application, Airbnb made use of the technology to replace trust among users by storing permanent records of their reviews, scores and personal information. This has kept poor guests and hosts accountable, as those with bad ratings can no longer replace their unwanted accounts with new ones.
This permanent storage function is quickly becoming the primary use of blockchain, taking its biggest effect in the financial services sector and the start-up ecosystem. Global players such as PwC, Deloitte, and IBM gained ground last year by introducing their own distributed ledger technology systems, whilst over 400 blockchain start-ups now exist in financial services alone. But this transformative role it is playing in FinTech is only the beginning.
As blockchain matures and more people catch on to this new mode of collaboration, it is expected to wholly transform other industries.
The sense of scale inside the blockchain community is that its proliferation will be as large as the original invention of the internet. This may seem a little far-fetched, but consider this: The World Economic Forum forecasts that 10% of global GDP could be in blockchain by 2025. Still not convinced? Dubai’s Government intends to issue all its documents on blockchain by 2020.
Back on home soil, blockchain holds the ability to encourage not only digital innovation and growth, but also provide solutions for real-life challenges. In the recent Blackett Review, the British Government acknowledged how blockchain can revolutionise services in both the public and private sectors. They have been testing the use of blockchain to track welfare payments and disburse student loans, and may use it in the future to trace aid spending, register pension payments and even implement a digital voting system.
In the financial sector, blockchain will have many disruptive implications that will serve to drive efficiency and significantly reduce costs. In the American reinsurance industry, PwC have estimated that improvements to placement, claims settlement, and compliance checks could create savings of up to $10bn. Across the pond, blockchain could tackle the £127bn procurement fraud problem by providing complete supply chain transparency — granting all parties involved the ability to track what went into a product and who handled it along the way, from start to finish.
In the energy industry, blockchain has the potential to create an open energy marketplace in which electricity is a tradable commodity. It may be used to replace central energy providers with individual standings which produce and sell their own electricity. Leading this innovative surge, New York City’s TransActive Grid is already actively helping consumers buy and sell any of their surplus renewable energy directly to their neighbours, with blockchain enabling and verifying the transactions.
These are but a few of the multitude of dramatic real-world applications that blockchain has in store for us. It is expected to alter the future by transforming businesses around the world.
Think back to two years ago, when any mention of blockchain would induce uninterested murmurs of its relation to bitcoin. Today, global financial institutions, leading governmental bodies, and major stock exchanges are experimenting with their own distributed ledger technologies. This year can be considered as a transitory period, as blockchain is beginning to take hold for the trailblazing early adopters, whereas 2018 will likely be the breakthrough year for ‘blockchange’. Considering its trajectory over the past couple of years and the buzz it envelops in the tech community, it would be surprising if blockchain usage did not skyrocket, giving merit to the revolutionary status it has attained.