If you have been following the transformations in technology, it is possible that you have come across some information on the digital/crypto currencies floating in the market – Bitcoin, Ethereum etc. – and the technology supporting them – Blockchain.
What is Blockchain?
Blockchain can be understood like this: Think of a global distributed ledger/database which is open to everyone. It contains a digital representation of physical assets, deeds, titles, assets, health records, ownership, contracts, intellectual property etc. Users can trade, store and secure without the intervention of third parties such as banks, stock exchanges, government intermediaries or institutions. The transactions occur between people one has never met (strangers) and does not include reduced transfer and interaction fees. A layer exists for transmitting details and a wallet for conducting the business, with another layer for describing details and reasons of the asset transaction. The shared network mechanically performs implementation and verification. Transactions include name, time, date and other details, with two copies made – one at the node of the blockchain and one at the user’s end. The user must update often and ‘each update is a new block added to the end of the chain.’ Addition and execution of such blocks makes them indisputable.
Blockchain’s security is maintained by peer-to-peer users via a process called mining where miners use advanced cryptography; and after verification confirm the transaction and record it on the block. Due to numerous miners spread all over, and the recording of details over multiple ledgers, no one can hack the system. In case of any tampering, nodes do not incorporate the transaction; besides blockchain notifying others in that sector about the disruption in the chain (51% of nodes must agree to the correctness of the information). Blockchain functions independently…without any central server, administrator, national boundary, or owner. It works as a public documentation of transactions between the users and has the capacity to disrupt traditional infrastructures. Due to its decentralized nature, it enhances trust, is transparent, counterfeit resilient, dependable and automatically traceable. Investors of Blockchain are New York Stock Exchange (NYSE), Google Ventures, Citi Ventures etc.
Blockchain as a Gatekeeper in the Trust Economy
Blockchain is taking on the role of a trusted gatekeeper, primarily due to the existence of a ‘trust economy’ in this ever increasing vulnerable market. More than banks and institutions, people have begun to trust crypto currencies, and others such as airbnb, uber etc. where the system is based on technology.
To move from a known to an unknown concept and follow is known as trust. It has gone on to become a chief force in today’s market. People have begun to trust technology, regulations and legal contracts than other people. And trust has changed to being institutional and commission based. Blockchain is one such technology which is distributed amongst people and is accountability based. In this trust economy, the individual decides the details of the information which should be recorded on the blockchain. The Economist describes the blockchain as ‘the great chain of being sure about things.” And as Rachel Botsman, the leading global authority on an explosive new era of trust, says, ‘The real implication of Blockchain is that it removes the need for any third party (lawyer, trusted intermediary etc.) as once buying and selling happens, it is recorded on the blockchain and the exchange is facilitated. So here one has to trust the idea and the platform, but not any other person.” She adds that blockchain’s technology will revolutionize and create trust in people on a global scale.
Blockchain stores records, transfers ownership of digital assets within seconds (in real time), and executes smart contracts. Smart contracts are self executing programs. They are automated and fulfill tasks only as per certain predetermined conditions – sale/purchase of financial instruments, digital goods, donations, physical objects, public securities, insurance contracts or digital payments. These smart contracts are computer coded; conditions can be set and turned to logical functions and clauses added if results are achieved. These contracts can also govern money circulation. A protocol maintains all these records and privacy can be selectively enforced.
Social/humanitarian implications are immense
Bitcoin payments have been made using digital wallets without the intervention of banks. It has even provided micropayments and microloans to socially disadvantaged people creating a completely new form of the economy. Especially for international aid campaigns in tough geographies where the needy do not get the facilities, smart contracts are very viable for social entrepreneurs. Further in the humanitarian sector, through blockchain, the supply chain becomes transparent with the technology being able to trace the source, transfer and destination of humanitarian supplies while also recognizing identities. Data becomes accessible as it is on a decentralized ledger while land titles and assets improved with this technology for people who are under-banked or possess no legal title to their own land.
Financial transfers of currencies, worldwide remittances, resolution and clearances, interbank transmissions and cross border currency exchanges are made easy through blockchain. Through multi-signature transactions, blockchain technology can complete escrow between three parties where only two signatures are required. If escrow agents own physical control over assets, this type of a transaction is not possible. Sometimes, merchants issue colored coins. These are tags which characterize assets overlaid on digital currencies. The resultant is discount coupons or gift cards. It is worth noting here that bitcoin does not lose its value here, in fact the merchandise comprises digital currency and asset vouchers. As of today, legal frameworks need to be modified to adapt and adjust to this innovation.
Blockchain gives users complete control over their digital identities. It can also cause businesses to classify and analyze information. The blockchain technology is still maturing and legal recognition is limited, hence it must be explored by individuals and businesses for its comprehensive capabilities.