With cryptocurrencies like Bitcoin and Ethereum in the news so much lately, more and more people are waking up to the concept of blockchain, but not enough people actually understand how it works, how it is applied in an industrial or financial system, and the potential it has to make dramatic improvements in the quality of our lives on a global scale.
1. The Next Big Thing
Blockchain technology is going to bring in a revolutionary change to this generation (and subsequent generations) like the internet did in the late 1990’s. Cryptocurrencies are not just going to change the way we buy and sell things, but our whole perspective on how we conduct our lives, and how we analyze and manage operational tasks. And, of course, make payments.
So, what is blockchain anyway? Without going down the labyrinth of heavy jargon to explain the technological genius behind the concept, let’s break it down plain and simple. Blockchain basically allows us to send and receive money from anybody in the world without depending on banks, credit companies, or any central financial agency.
Bitcoin, which is the flagship blockchain product is basically a peer-to-peer electronic cash system that utilizes a powerful protocol defined by specific rules to send and receive unique highly encrypted data between computers directly. This subtle experiment was a success and spawned a wide range of blockchain applications over the past several years.
What’s interesting is that the concept is already being used by a number of major multinational companies, banks, and government agencies. Although payments are not made through cryptocurrencies, adopting blockchain modules in the form of shared ledgers has provided documented results of enhanced security, radically lower costs, lesser errors, and most importantly the absence of a central point of failure or attack.
To put simply, the implementation of blockchain has reformatted the manner in which crucial transactions are executed and information is stored.
2. Understanding the Bitcoin Model
Blockchain has changed the way we perceive, process, and verify information. The applications of the concept are still being explored in various industrial verticals. The most high-impact blockchain applications have been built on the Bitcoin model.
So how does Bitcoin actually work?
First of all, Bitcoin, or any other currency in this domain, is not downloaded or uploaded anywhere. All transactions implemented with Bitcoin are recorded in a register or ledger, which is globally shared across the extensive peer-to-peer Bitcoin network. Each transaction has to be verified and approved.
This is executed on computers hooked on to the network by a global volunteer group. There is no “main server” or “headquarters” for this network, hence no single point attack can bring the system down.
Post verification and clearance by the volunteers, these transactions are subsequently stored in what is called a “block.” The next set of transactions is linked to this block with another block, and consequently forms a “chain.”
Each subsequent block validates the block before it, ultimately creating a verified and time-stamped “blockchain” of information that cannot be altered without rendering it obsolete. The “register” or blockchain can be accessed by anybody at any point in time on a computer.
3. Decentralized Power
What makes the concept of cryptocurrency so lucrative is its decentralized nature. There is no centralized body or “middle money man” to take a cut out of a transaction. The blockchain technology behind it ensures that the transactions are transparent and error-free.
The peers who contribute their computing power towards sustaining the blockchain system are automatically rewarded with newly-generated currency making the system self-contained and devoid of any regulatory body. A fascinating aspect of this concept is that the technology can be conveniently and cost-effectively adopted for an existing system making it much easier and cheaper to run.
Furthermore, the “ledger” applications of blockchain can be used to record just about any form of valuable information; not just financial transactions. Anything that can be measured and valued can be stored and shared. This could include votes, food stamps, land titles, deeds of ownership, birth or death certificates, and a whole lot more. The applications of this concept are only limited by the imagination.
We are not talking about some farfetched futuristic utopian concept that could be implemented in the distant future. This is already happening, right here… right now!
4. Blockchain Working Model
To take just one example, BHP Billiton is a multinational firm involved in mining, petroleum, and metals. It’s a multinational company based in Australia. BHP has already integrated Ethereum blockchain technology into its day-to-day administrative operations.
It makes use of the InterPlanetary File System or IPFS, which is a peer-to-peer file system to streamline communication between the core company and its vendors. The technology helped the company to cut out the need to depend on several vendors for sampling of fluids, ore testing, shipping, and distribution.
With Ethereum’s technology in place, all of these processes can be tracked by anyone from the lab technician to the mining engineer to the supply chain manager to sales and distribution. The system can even facilitate a window to access and monitor the whole process for a quality control officer or safety engineer.
The end result is that they get a system that enables every individual involved in the process to have a real-time assessment of how the process is developing at each stage and, if required, make modifications without any delay or loss of data at zero cost. This is just one example among several blockchain applications currently in place; changing the world as we speak.
5. The Future and Beyond
Again, the possibilities are endless when you start thinking about the change in dynamics, transparency, and quantification that blockchain technology can bring to virtually every aspect of our lives. At this point in time, it’s not so far-fetched to envision a world where we have an ocean of “smart” devices that sense, record, communicate, respond, and share crucial data to effortlessly and seamlessly execute transactions that will help monitor and manage our environment in the most effective way.
The key factor here is transparency. A universal ledger that accounts for all transactions creates universal trust in the community. So exactly how does this affect us?
Say for example, you’re at a restaurant and you need to know where the ingredients that went into your order came from. Or, you could be working in a foreign country and are burdened by the fees charged by banks or credit companies to send money back home. Or, you could be sick and tired of political leaders who have no accountability or transparency and need to understand how publics funds are being used for the community. Or, you may be a real estate agent who needs to identify land titles surrounding a particular plot.
As in all examples, everything is accessible to you in an instant, enabling you to plan your life and implement it as you see fit.
There’s a great deal of volatility and instability surrounding Bitcoin and its contemporary cryptocurrencies today; however, you can’t deny the fact that the popularity of blockchain applications will continue to grow at an exponential rate in the coming years and conventional financial systems could face a tough time standing up to the challenge.