Introduction and usage of Blockchain
The internet is just a pipe, and any attempt at real security is merely a sticking plaster that’s doomed to get hacked, somehow, by someone, at some point. Cue the Blockchain, a tech that proves ownership in an indisputable way.
Said to be as powerful a catalyst for creativity as Internet Protocol, Blockchain-led innovations are likely to begin in the world of financial services, but could extend far beyond – its full potential is now only just starting to be understood.
“[It could] bring a whole new dimension of trust to the internet,” says Richard Moulds, VP Strategy, Thales e-Security, “such that it can become a transactional platform between people and things, and not just the pipe that connects them.”
No wonder, then, that Blockchain accounts for the largest spend on emerging technologies this year – almost $1 billion. And you thought it was just a Bitcoin enabler.
What is Blockchain?
“Blockchain is designed to make transactions fraud-proof,” says Ajay Vij, Vice President and Head of Financial Services for Europe at global IT consultancy Infosys. “It takes the form of a distributed database against which anyone can verify the validity of transactions held within it.”
Sometimes referred to as a shared write database or a distributed ledger, a Blockchain is technology that acts in a similar way to a digital signature. “The Blockchain is a distributed ledger that is a very secure way of passing information from one place to another,” explains Gareth Stephens, Head of New Proposition Development at identity data intelligence company GBG.
Completely open source tech, nobody owns the Blockchain, there’s no central arbitrator verifying that each transaction is valid, and the entire network self-regulates. “The fact this self-regulation is extremely robust is the genius of Blockchain technology,” says Stephens.
A database, a protocol and an app?
“A Blockchain can be a database, a protocol and application all at once,” says Micah Winkelspecht, Founder and CEO of Blockchain provider Gem. “Once the data is recorded it’s practically impossible to rewrite, so by design, Blockchains create permanent historical records.” The attractions of such a technology are obvious to a world that’s moving every kind of commerce, financial transactions and data online, or to the cloud, but always across insecure networks.
How does it work?
Each transaction creates a 64 character hash which the network owners use to build a block by combining it with a previous hash. “The blocks are produced in a chronological and linear order with each new block containing a one-time-use character string or hash drawing that refers to the block before,” says Vij. “It is therefore almost impossible to create false transactions without them being spotted.”
The banks’ back office systems and ledgers, which are currently subject to cybercrime and fraud risk, could about to be sealed up. Blockchain’s in-built ability to record and time-stamp all transactions – and cheaply, by replacing complex existing processes – hugely appeals to this heavily regulated, cost-conscious industry.
What are Blockchains used for?
So far Blockchain is known as the enabling tech behind the cryptocurrency Bitcoin, which is mostly used to make international payments that swerve the expensive currency conversion process. However, its real advantage is that it is a much cheaper way to make payments. Bitcoin has exploded in value recently, but it’s dwarfed by the mainstream global finance industry, which moves trillions of dollars of assets every day.
“This technology can be applied within the existing financial infrastructure to digitise every asset type like stocks, bonds, options, futures, land titles, real estate, and more,” says Winkelspecht. “Exchanges of these assets can currently take days or even weeks to complete, but now, these assets will be able to change hands at the speed of the internet.”
Future of Blockchain
Why is it so attractive to banks?
Financial institutions are just the kind of companies with which Blockchains will find the most success. “They can create, manage, and record entire asset lifecycles on a cryptographically secured platform that can be interoperable with the platforms of third-parties,” thirdparties,” says Winkelspecht, “such as clearing houses and other financial institutions.”
There is an inherent danger in banks adopting Blockchains because the tech effectively removes their powerful middleman position in the currency exchange market. “The banks are currently the central arbiters of currency exchange, and with Blockchain there is no requirement for one, so it is a huge potential disruption in that sector,” says Stephens, but that could be outweighed by savings on infrastructure costs.
Santander estimates that Blockchains could save banks $20 billion (around £13 billion, AU$28 billion) a year by 2022.
While Blockchain databases do have the potential to be phenomenally important, it’s not just banking that will benefit. “They’re a whole new kind of distributed database with high integrity guarantees, designed to run in untrusted environments,” says Dave Hrycyszyn, Director of Strategy and Technology at digital agency Head. “That means they could transform any industry that deals with history, data, and trust – really important sectors like finance, medicine, supply chains and auditing.”
What are some other potential uses for Blockchain tech?
Industries that rely heavily on disparate data networks are ripe for disruption by Blockchains, which create an authenticated online digital identity. This is the end of ‘analogue’ trust and the start of digital certainty.
“Once this digital identity has been created, each ongoing re-authentication can be done via the Blockchain,” explains Stephens. “This makes this a ‘trust-less’ system by the fact that no one company or individual has enough information to defraud the system – we all require the Blockchain to agree before passing an authentication request.” GBG is looking to replace the requirement of trust, and using Blockchain to decentralise the process.
Another use could be the medical sector, where the handling of patient medical records is a thorny issue. “With shared ledger technology, patients can maintain control over their own tamperproof medical history,” says Winkelspecht, who thinks that Blockchains would allow patients to share their medical data selectively with hospitals, doctors and clinics in real-time. As well as massively reducing privacy risks, using Blockchains could also reduce data management costs.
Governments are interested, too. “The UK government is already working towards exploring the use of Blockchain technology in a bid to improve accuracy in record keeping,” says Vij. However, Blockchains could also make fraud-proof electronic or internet-based voting possible.
Could Blockchain prevent illegal music/movie downloading?
“It can certainly challenge copyright infringement, and it may be able to help law enforcement,” says Winkelspecht. “By using a shared ledger or shared write Blockchain for digital rights management, a Blockchain could be used as proof of ownership, and serve as a common rights repository for content owners.” Blockchains could also be used to transfer rights between users.
Others aren’t so sure about the extent of Blockchain’s skills in this area. “Illegal movie downloading will still continue regardless of Blockchain,” says Stephens, though he thinks it has the potential to allow musicians to have a platform to distribute the undisputed ‘original’ version of a track so fans know they are buying from the source. “It does not stop someone buying the original, copying it and then putting their own version onto the Blockchain,” says Stephens.
A compelling future?
Blockchain technology isn’t going to change the internet overnight. “There’s a lack of useful information that connects this technology to real problems,” says Winkelspecht. “People understand that it’s transformative, but they are unsure how it can help their business.”
Blockchain is exciting, but it’s a tech that needs proving, it needs quality apps, and it needs regulation. “The world has been gifted a potentially great piece of technology,” says Stephens, “but now it is up to us to build something compelling that people want to use.”
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