Beyond Cryptocurrency: Pushing Digital Frontiers with Blockchain
If you ask 10 different people what blockchain is, you might get 10 different answers, and at least a few blank stares. Many people have heard of Bitcoin, the cryptocurrency that’s been in the news for it’s rising values, and spurring the creation of various other (legitimate or not) digital coins.
Digital currencies are only the beginning of a flood of potential uses for the new technology. Applications built on blockchain technology can provide greater trust, security, and efficiency for many organizations.
How Does Blockchain Work?
The technology underlying blockchain is a bulletproof record keeping system. A blockchain acts as a ledger to record transactions, which are time stamped and stored in “blocks” on an ever-growing “chain.”
Transactions on the blockchain can be automated, replacing middlemen with software. Without the need for an intermediary, costs can be reduced and transactions are faster and more efficient.
No single party controls the data or information on the blockchain, as the records are stored on a distributed database, rather than with a central authority. This distributed nature makes it nearly impossible to tamper with records, providing greater security and ensuring authenticity.
For example, imagine there’s one building in a town that holds all of the town’s gold (data). A thief would only have to break into this one building to steal everything.
This is essentially the current situation, where all data is stored in a central location. Hacks into large company and government databases continue to expose this weakness.
In a blockchain, the gold (data) is distributed — so if someone wants to steal it, they would have to break into every house in town. On top of that, new houses are being built every 10 minutes, and it quickly becomes impossible for a thief to break into all the houses in town and keep up with the new ones that spring up.
The power of blockchain technology relies on a few key principles:
Distributed and decentralized database — databases on the blockchain are harder to corrupt (none have been hacked yet) and highly resistant to outages or manipulation, since there’s no single source.
Peer-to-peer transactions — the blockchain acts as a trust layer for the internet, and value can be stored in escrow on the blockchain, allowing individuals to trade without an intermediary. People can also transact anonymously, providing greater privacy.
Transparency of transactions — every transaction is recorded to the blockchain, making them easy to verify. For organizations with sensitive data, permissioned blockchains allow for privacy in transactions while still providing other benefits of blockchain.
Security — Much of the value of blockchain lies in improved security. Information has traditionally been stored in silos — blockchain takes all that data and decentralizes it.
Blockchain Beyond Bitcoin
Blockchain tech today is often compared to the internet in the early 1990s. While the internet transformed how we share information and connect, blockchain is still in the earliest stages of transforming how we exchange value and who we trust.
Not every business or product will benefit from a blockchain solution. Initially, the greatest opportunities for success will be in any organization or institution that has centralized intermediaries, bad user experience, outdated / inefficient systems, or has demonstrated incompetence with data security.
Banks and financial institutions, which are usually the slowest to embrace technology and burdened with regulations, were the first to be impacted with the explosion of Bitcoin. Many banks are now experimenting with permissioned blockchains in an attempt to keep pace. With the increased trust between direct parties that blockchain offers, they’ll face more competition in the markets where they’ve traditionally dominated — which may ultimately end up being better for consumers.
The Rise of Bitcoin
Bitcoin is the most popular entry point for many into the wild west of blockchain technology.
Bitcoin was established as a peer-to-peer electronic cash system, using software code to authenticate and protect transactions without the need for a centralized bank as an intermediary. These transactions are recorded to the blockchain, which tracks and records each transaction, allowing for trust between unknown parties and providing transparency.
A couple of key factors contributed to the rise of Bitcoin and set the stage for future blockchain applications — for cryptocurrencies and beyond.
First is the ubiquity of the internet in the 21st century. There are now more mobile phones than there are people on earth, and more people traveling and sending money across borders — helping create the right conditions for a global form of digital money.
Second, in the aftermath of the 2008 financial crisis many people began to distrust banks and the future of major financial institutions suddenly seemed uncertain. Cryptocurrency emerged as an alternative solution if the financial system were to fail, and sparked a new way of defining currency in the digital era.
Bitcoin was the first app for the blockchain — similar to how email was the first app for the internet. There is a ton of potential for new applications on the blockchain.
Where Bitcoin is blockchain technology to send money peer-to-peer instead of through a bank, the Ethereum platform replaces middlemen with smart contracts.
In a smart contract, two parties agree to the terms which is then recorded as code on the blockchain. When a triggering event occurs, such as an expiration date, the contract automatically executes the obligations according to the coded terms. This process allows for quicker transactions and improved efficiency by removing or limiting middlemen, and creates new opportunities for interoperability between apps on the same platform.
Smart contracts have the possibility for major disruption in a number of industries:
Trusted Peer-to-Peer Transactions — think eBay without eBay.
A True Sharing Economy — without centralized companies like Airbnb that aggregate resources and take a percentage.
Supply Chain Management — track each step of a product as it moves through the supply chain and automatically execute smart contracts at various steps (already being tested in companies such as UPS and Walmart).
Loyalty and Rewards Programs — provide instant redemption and exchange for multiple loyalty point currencies on a single platform, streamlining the process to make programs more efficient and cost effective, without compromising privacy and competitiveness.
Digital Rights and Intellectual Property — protect copyrighted content and pay the owners and creators almost instantly when licensed work is used:
- Music: Publishing music as tokens on a blockchain allows musicians to retain ownership of their IP, and helps them get paid.
- Video: Companies like VideoCoin and Livetree are building a new kind of infrastructure for videos on the blockchain; decentralizing cloud-based video storage for greater efficiency and creating a new type of economic model where individuals who back a campaign own a tiny portion of the copyrights, which gives them ownership of the finished project.
- Images: Kodak is creating a blockchain-powered image rights management platform dubbed as KODAKOne, along with a photo-centric cryptocurrency, known as KODCAKCoin.
- Games: CryptoKitties is one of the world’s first blockchain games, built on the Ethereum protocol. Like Beanie Babies before them, CryptoKitties are collectibles. Each CryptoKitty has unique ‘cattributes’ (core ‘DNA’ that’s stored on the blockchain), and can be bought or sold with Ether, traded peer-to-peer, and bred to create new kittens with some of their parents’ traits. These digital kittens are a fun and easy way to bring the concepts of blockchain and digital scarcity to a larger audience beyond the early adopters of cryptocurrency.
One of the greatest values of the blockchain is in its inherent ability to provide secure, authentic, and verifiable records with public (or permissioned) transparency. Blockchain offers a way to replace paper-based record keeping and speed up transactions, while ensuring that all documents are accurate and verifiable.
This can be applied to a number of industries burdened by paperwork and/or corruption:
Healthcare — Rather than having separate records among all your healthcare providers, storing your health data on the blockchain can help alleviate a huge pain point in health management. You own your health data, and the records are secure, immutable, and accessible only to those that you allow.
Identification — Some 2+ billion people in the world don’t have a birth certificate, preventing them from getting a proper ID and basic services like a bank account. Time stamping the birth of a child on a blockchain ledger can provide people with verifiable birth records.
Title and Ownership Records — In real estate, pain points for buying and selling property include a lack of transparency during and after transactions, mountains of paperwork, possible fraud, and errors in public records. Real estate blockchain applications can help record, track, and transfer land titles, property deeds, liens, etc. and verify the authenticity of each transaction.
Land Registry — Decentralized and incorruptible record keeping provides a way for governments to ensure the storage and register of land ownership, useful in countries with a history of corruption or who face natural disasters — such as the 2010 earthquake in Haiti that destroyed buildings that housed municipal records and left citizens scrambling to reclaim their land.
Digital Voting — Concerns about voting fraud and foreign interference in elections could be solved by capturing votes as transactions through blockchain. Voters’ identities would be authenticated and the blockchain will keep track of each vote, creating a transparent and verifiable audit trail. Secure record keeping ensures that votes could not be changed or removed, nor could illegitimate votes be added to the blockchain.
Human Resources and Verified Credentials — Blockchain ledgers can be used to verify employment history, background checks, and validate credentials — streamlining the hiring process and guaranteeing the authenticity of applications. New services are enabling schools and organizations to issue and verify certifications and credentials using blockchain — MIT is already offering some graduates digital diplomas.
NGOs and Non-Profits — Tracking charitable donations on the blockchain provides accountability and transparency about where those donations actually end up, ensuring they don’t fall into the wrong hands.
Paperless Government — An entirely paperless government is a long way off, but not impossible. Dubai is striving to be the first blockchain-powered government by 2020, and may set the example for others to follow.
Connecting a Disconnected World
While most people today barely know what the blockchain is capable of, many forward-thinking organizations, governments, and individuals are beginning to explore the boundless possibilities of applications built on a blockchain.
Cryptocurrency has already begun to cause a global rethink of the concept of money. Smart contracts redefine trust and peer-to-peer transactions, and incorruptible records kept on a secure blockchain ledger will provide greater opportunities for transparency and efficiency.
While paperless governments and decentralized currency seems lofty in scope today, perhaps even nearing an idealized Libertarian utopia, what’s really exciting about blockchain technology is the vast opportunity for innovation that it enables.
Blockchain is a new technology, not a panacea. There’s plenty of potential to improve existing or outdated systems, as well as for abuse by bad actors. It’s uncertain today what or when the tipping point will be for large-scale adoption of blockchain, as early explorers discover upsides and downfalls.
One clear first step is to promote a more widespread understanding of the technology. This helps people avoid getting scammed by fake sales of new cryptocurrency, as well as to inspire cutting-edge ideas that will push the frontiers of human interactions and create entirely new product categories and business models.
Thanks for reading! Let me know in the comments what use of blockchain technology is the most exciting, or confusing, to you. Follow me for a deeper dive into these topics and more!