Why do we care about blockchain technology?

Why do we care about blockchain? Hint: It’s not because of Bitcoins

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Norbert Biedrzycki blockchain not because of Bitcoins

Once people began to conduct transactions over distances greater than one man carrying a bag could travel, or that included more stuff than the bag could hold, a third-party (that people on both ends of the transaction trusted) became necessary.

This is how we got money (with the trusted third-party the sovereign backing it), banks, and, ultimately, a financial system viewed as too big to fail… but which sometimes did.

Blockchain technology stores and transmits information on transactions conducted on the internet. A block contains information on a specific number of transactions. Depending on the network’s capacity, a new block of data is created every so often, and then another, and another, and so on, creating a kind of chain – a blockchain. The blocks are linked through complex mathematical algorithms.

A blockchain records and stores all the transactions concluded, along with information about them – the date, time, and parties to any transaction. Each node within a network (and there are tens of thousands of nodes) possesses a full copy of the blockchain in the form of a transaction ledger. Using complex mathematical and cryptographic rules, all transactions are verified by so-called miners, who also are responsible for creating new blocks. Additionally, the nodes within a network verify in an automatic and continuous manner both the transactions concluded and the entries in the transaction ledger. An attempt to cheat by modifying a concluded transaction, or entering an unauthorized one, will be foiled because the modification or fabrication won’t match the transaction records in the network ledger. So, it will be rejected.

All transactions recorded on the blockchain are public, while thousands of nodes simultaneously validate that a given transaction took place on day X at time Y. The blockchain itself – inhuman, disinterested, unable to forget – is the trusted third-party, affording all parties access to a single source of reliable and verified information.

Sounds good, doesn’t it?

That’s why we care about blockchain.

 

Transaction is information

Right now, blockchain technology can be applied to support many transactions (trade, currency, shares, stocks, and even electric energy). And work is now underway to use the blockchain as a ledger for banking, document certification systems, and digital signatures in public administration and notarial records. Theoretically, all these transactions could be concluded outside the system that has been in operation for many centuries, i.e., without institutions, and directly between the parties to a given transaction.

Of course, when most people think of blockchain today, they think of cryptocurrencies like Bitcoins and Ethereum and Litecoin. That’s hardly surprising, as Bitcoin’s market ups and downs are breathlessly reported, sometimes on the front pages of newspapers.  In fact, there are more than 800 cryptocurrencies traded on different stock markets… and they are just the tip of the blockchain iceberg. Lying beneath the water is the fact that technologies such as blockchain will allow small organizations, and even private individuals, making relatively small capital investments, to disrupt the global economic system by making p2p transactions more secure, reliable, and useful than the traditional trusted third-party.

That’s a revolution, no more, no less.

 

The future is… maybe not yet

This is not to say the blockchain is the key to creating a decentralized financial system that will cover all humanity independent of governments, financial institutions, banks, intermediaries, and stock markets – a system too big to fail that won’t. But the current level of advancement of the blockchain, as well as the cryptocurrencies and innovations based on it, lead us to believe that we are on the path to creating just such a system.

The nature of blockchain technology (which is open source) will enable us to modify it as needed. (Perhaps some of its control and reconciliation elements will prove to be redundant.) Trade processes and information exchanges may become more transparent, faster, and considerably cheaper. It may no longer be necessary for governments and businesses to bear the costs of supporting a complicated global financial system, nor may people need to put their trust in anything other than the blockchain’s ones and zeroes – which are pretty trustworthy.

Public trust institutions such as banks, stock markets, and intermediaries in financial transactions see the enormous potential of blockchain technology, as well as its disruptive energy. They will need to transform themselves, or find themselves facing competition from organizations outside the ever-changing and evolving FinTech industry.

And that will be novel and, even better, unpredictable.

 

Related articles:

Only God can count that fast – the world of quantum computing

Blockchain – the ultimate financial crash

Blockchain – the Holy Grail of the financial system?

What is blockchain? All you need to know

What are the bitcoins? All you need to know

Blockchain has a potential to upend the key pillars of our society

Internet bubble 2.0

 

 

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11 comments

  1. Adam Spark Two

    As the Internet commoditized the cost for communication, Ethereum commoditizes our costs of agreement and trust.

    • Norbert Biedrzycki  

      Sure, but only if ETH would be used more wildly not as a store of value but for a smart contracts as well

  2. Adam Spark Two

    The Blockchain protocol is the world’s largest modern-day abacus; it only enables us to move a bead (or coin) from one side to the other. The ability to do this on a global, permissionless substrate is not trivial. But I can’t overemphasize the limited scope of this initial design, due to its use of a virtual machine which isn’t Turing-complete.

    • Norbert Biedrzycki  

      Blockchain application goes beyond crypto only. Could be used in energy production and contract reconciliation, banking/insurance & finch, public sector as a trust document storage or value sharing … and many more

  3. John Accural

    How can blockchain help? First, it boosts affordability by reducing costs and waste, enabling the whole value chain to transact and share information in a trusted, easily auditable way. Second, it improves accountability and reduces fraud by offering greater real-time transparency across an organization’s entire value chain. These benefits then multiply and increase public trust in the organization’s capabilities, giving it a more compelling story to tell potential donors and to attract sustainable funding sources.

    • Norbert Biedrzycki  

      Very true. I would also add trusted data across whole of the value chain for all users, no limitations

  4. Jack666

    Perhaps that is my take-away: 2017 was the year that individual lawyers and law firms got over themselves and worked together, at least in the blockchain space.

    My prediction: In 2018, the speed and scale of technological developments will make non-traditional legal teaming not just nice to have, but critical.

  5. Mac McFisher

    As a new generation of crypto users begin to invest in the technology, developers are growing concerned about its infrastructure. They’ve seen this happen before – new users enter the space attracted by big gains, then suddenly, a catastrophic failure, usually at the very exchanges designed to hold and custody those funds.

  6. Simon GEE

    2018 will be the year where the tremendous innovation and promise of blockchain must become real. Otherwise, the market is in for a rude awakening. And maybe that’s not the worst thing in the world.

  7. Adam Spikey

    God article. Check this one: 18 blockchain-related prediction for 2018 by a co-founder of ConsenSys Capital, the financial services offering constellation at ConsenSys including ConsenSys Ventures, Token Foundry, and ConsenSys Capital Asset Management at consensys.net

    • Norbert Biedrzycki  

      Very good read. Thanks for sharing