The Blockchain Revolution: Can a Technology Change Society?
What is Blockchain Technology?
A Blockchain is the revolutionary brainchild technology of Bitcoin, which is a digital currency and payment system created in 2009 and released as open source software. Blockchain is basically a public ledger of all Bitcoin transactions that have ever been executed. Transactions are added as blocks in a linear, chronological order by a “node” or computer connected to the Bitcoin network. It makes for a complete and accurate recording of transactional data from the very first block to current. It was developed and released by the mysterious Satoshi Nakamoto, which may in fact be a pseudonym for a person or group of people. It is unknown exactly who this is.
Blockchain allows digital information to be distributed but not copied and in doing so has basically created a new type of internet that is incorruptible. Initially designed for financial transactions Blockchain technology can be used to record just about anything of value. The objective is to create a single version of any particular transaction, containing much more information than what can be offered by any one singular system, revealing transparent, real-time data for various uses.
The technology itself underpinning the Blockchain revolution consists of encryption enabling security and anonymity, mutual consensus verification resulting in collective network updates and hence an accurate dataset at all times without the need for a central governing authority.
Applications of Blockchain Technology in the Current Market
This technology is already widely used in various forms and applications. The most common and prevalent example utilising this technology is Bitcoin. This digital currency was designed to essentially eliminate the middleman as anyone can hold Bitcoin and pay anyone in Bitcoin. An offshoot of this, is using Bitcoin to send money anywhere in the world via portals such as BitPay and Abra that include merchant processing and remittances.
As mentioned earlier, Blockchain technology can be used to record anything of value and has been used as such. It is used to create digital assets such as stocks, bonds, land titles and even frequent flyer miles by companies such as NASDAQ and Openchain.
Another example of this technology is using a Blockchain ID to sign in to apps, websites and digitally sign documents. Companies are utilising Blockchain to create verifiable records of data, files or business processes as well as executing Smart Contracts.
Benefits of Blockchain Implemented into Current Systems
The benefit of this technology is that it makes it possible for independent parties to work with universal data sources, enabling automatic reconciliation, richer datasets and allows accurate, check-free data distribution. This essentially results in more efficient settlement of transactions and processing.
The European Union in particular, through the European Securities and Markets Authority (ESMA), has predicted that an increase in the use of Blockchain could improve the verification of clearing and settlements markets, improving the process and removing the intermediaries and in-so-doing, removing the margin for error and reducing transactions costs. They have also predicted that Blockchains can reduce the costs for securities providers by automating the monitoring and reporting of transactions and eliminating the need for maintenance of individual ledgers and enhancing post trade services and reporting capabilities.
Blockchain can be used to make government more efficient through making voting more transparent
From a political point of view, it is believed that Blockchain can be used to make government more efficient through making voting more transparent, as well as being used to confirm data origin, accuracy and data tracking for government records. There is also the potential for improving functions such as digital voting, land registries, patent and trademark issues. Essentially Blockchain can improve sectors such as data authority, data accuracy and access control.
Additional potential Blockchain use include transparency of non-profit organisations, taxation and legislation compliance regulation.
Advantages of Blockchain Technology
Blockchain technology results in parties able to make an exchange without an intermediary and thus reducing or even eliminating counterparty risk. Blockchain technology empowers users as they are in control of their information and transactions. The data is high quality, comprehensive, reliable, timely, accurate and available for distribution and due to decentralised networks, Blockchain does not have a central point of failure thus able to withstand risks of malicious cyber-attacks. Due to the process integrity, users can trust the system to transact exactly as protocol demands thus eliminating the need for an Overseer. One of the most beneficial aspects of Blockchain is its transparency, immutability and simplicity as it eradicates the need for multiple ledgers. Blockchain transaction can reduce transaction time greatly as transactions can be processed at any time of day. Lastly, by eliminating third party intermediaries and overhead costs for exchanging assets, Blockchain can greatly reduce transaction fees.
Disadvantages of Blockchain Technology
As great as this technology seems, there are, however, some pitfalls. One being transaction speed, verification process and data limits are limitations when widely applied requiring nascent technology that may or may not be available. Another being the fact that currency has always been regulated by government but Blockchain and Bitcoin will not necessarily be adopted by financial institutions if its government regulation remains undecided. From an infrastructure point of view, it requires huge amounts of computer power to process the sheer number of transactions required and there are always concerns of cyber security, despite private and permissioned blockchains and encryptions.
Blockchain technology requires performing tasks in a completely different way thus requiring a transition from current systems which can be problematic and hindering when companies are faced with integration. For this technology to succeed, it needs buy-in from all users and operators as it is a shift to a decentralised network which could involve problems as a cultural shift needs to occur.
Lastly, the capital costs of Blockchain technology could be a disadvantage and perhaps restrictive to many. Although this can be offset against the remarkable savings in transactional costs, the initial outlay can be limiting.
Accelerators of Blockchain Technology
Currently, the largest proponents driving this technology are large financial companies capable of absorbing loss. Financial institutions the world over are continually looking for innovative solutions to business problems and always looking to combine technology and digital capabilities to accelerate their business initiatives. Thus, the drive and motivation necessary to accelerate Blockchain technology will come from these institutions and once gaining traction, will hopefully become mainstream.
Political Aspects of Blockchain
German legislation is very technologically forward when it comes to Blockchain and regulating Bitcoin and virtual currencies. The government has declared Bitcoin as a form of private money and exempted Bitcoin transactions held for over one year from 25% Capital Gains Tax.
Although capitalists have embraced and touted the benefits of this technology, banks and government institutions have warned that it is not an alternative to national currencies and values were “highly speculative”. Commercial selling or purchase of Bitcoin requires a licence obtained by BaFin.
The 2017 German Federal elections stands the various parties in very different corners with respect to their stance regarding Blockchain and its uses:
The Christian Democratic Union have taken steps in an anti-terrorism vein to hinder terrorists financially. This includes the proposal that prepaid credit cards should not remain anonymous and an international legal basis should be created for Bitcoin taking the stance that if it is not controlled it poses a potential threat.
Free Democratic Party advocates individualism, capitalism and social reform and is therefore pro Blockchain.
Piraten Partei is distinctly Bitcoin and Blockchain friendly
Grünen advocates Blockchain to inspire an energy revolution
Die Linke party is a democratic socialist and left-wing populist political party, who do not support Bitcoin is legal currency.
These next elections will have a distinct impact on blockchain’s uses for government going forward. If established, Blockchain can be used by the government in positive ways, including digital voting, identification purposes, taxation, land registries and even regulate patents and trademarks.
What’s Next for Blockchain?
A German company has announced the intention to implement electric car charging stations that use Blockchain based smart contracts to authenticate users and manage billing. This is just one of the many uses, other than financial that have the potential to be realised if Blockchain is adopted as a technology.
Additional applications for this technology include decentralised internet to improve its resiliency, smart contracts reducing the need for standard legal contracts, decentralised markets allowing trade without a third party, distributed cloud storage, decentralised social networking, encrypted messaging, proof of ownership preventing the sale of stolen goods, authenticated voting, trading of stocks and real estate transactions.
All of these applications rely on blockchain’s transparency and reduction of time and costs associated with conventional transactions. The decentralised nature and instant reconciliation process makes this system remarkably accurate and secure. This technology has gained a lot of traction recently and for good reason, it is definitely the way forward and revolutionary, with the potential to alter society as we know it.