If you are a technologist, like us, you have heard about blockchain. As this technology progresses, it becomes more and more popular. Therefore, it is crucial to know how to use it. Luckily, the WiredeltaⓇ team buckled up and did the research for you. Here is a simple introduction to how blockchain is shaping our future.
Blockchain is a disruptive technology bound to change many areas in our online and offline life. It is predicted to affect industries ranging from legal, finance and politics to healthcare and more.
Blockchain is already changing the way we can transfer assets around the world. The technology is the core of the very hyped cryptocurrencies. blockchain made it possible for transactions to happen without governments or organizations working as intermediaries. But the potential blockchain holds goes much further than cryptocurrencies. blockchain is shaping a society where trust is not a requirement for exchanges between two parties, a “trustless” society.
But how does blockchain work, and what future opportunities lie within this innovative technology? Can it really change the way we’ve been doing things on the internet? We will try to answer these questions as best as we can.
How blockchain works?
Blockchain uses a specific algorithm that encrypts information and stores it as a 20 digit code, a hash. Every code is unique and applies only to a specific set of data. If as much as one comma (,) is changed in the set of information, the algorithm produces a new and completely different code. These sets of data can contain financial records, voting records, medical records and so on. The codes are saved in something called a ledger.
After safely encrypting the data, the ledger is made public and it is stored in computers around the world called nodes. Now the entire network has a copy of your 20 digit code, that is used to verify and confirm your interactions with the blockchain. Whenever you want to make a transaction, for example, other computers compare your ledger to their copy. If the copies match the original, the network confirms your data and you can complete your transaction. If not, it is a sign to the network that you are trying to tamper with the records in the ledger, and are punished accordingly by the network. After a transaction is made, the ledger gets automatically updated for the entire network. This means that the entire network now knows that the transaction took place, and can vouch for it.
You can think of the ledger as a key to access your data and that a picture of that key is given to the network. When you need the network to validate your ledger, it simply looks at the picture and compares it with the original. If the two are the same, then you may proceed with your transaction.
Trust in blockchain
Trust in a blockchain world is established through the algorithms and the distributed ledgers, rather than personal relations. Any and every change in your data is automatically shared as a new ledger with the network. This means that if you have made a transaction, the network knows instantly, and neither you nor the other party can deny the action.
Because your information needs to be confirmed by a group of computers, or nodes, fraud is next to impossible. Neither you or the party you are transacting with can lie. If the ledgers the network validate have as much as a comma difference then the transaction is denied.
No More Intermediaries
In order to go about our daily life without too much friction, the majority of us pay intermediaries for the same kind of validation that a blockchain network does. We hire lawyers to draw up contracts, we use banks as a means of transferring money, we use police records for criminal investigation and so on.
Not all intermediaries validate information or transactions for free, though. Banks, for example, normally take a fee ranging from 1% up to 24% for each transaction. Now, imagine that Gmail was to take 5% of an email sent to another party. That would never work and this shouldn’t be default setup in finance either. People tolerate this ancient banking system as a necessary evil, given the absence of a better alternative. However, now we have the technology and the opportunity to actually change things for the better.
Blockchain allows us to fill the gap of trust and connect with each other directly, without a third party taking a cut. Data is verified and fraud is reduced through the network. Thus, expediting the process while maintaining transparency for both parties involved.
Is it safe to use blockchain?
This system eliminates the need for intermediaries such as banks because your financial records are safely stored in your ledger instead of an account. The network knows about the existence of your account and, again can vouch for it.
However, because the data is encrypted, no one can trace it back to you. This means that your data is indeed private. If, for any reason, someone needs to verify that you are the owner of a certain asset, all you have to do is prove that you have the key to access the ledger.
For example, let’s say that you are standing next to a car and someone asks who’s the owner of the car. You say it is yours and to prove it, you take out the key and open the car. The world around you can see that you are the owner because you have the key or the ledger. However, they don’t know how you managed to buy the car because they don’t have access to that information.
Who can use blockchain?
With the rise of blockchain, many business opportunities emerged as this technology promises more efficient and effective ways of exchanging valuables (i.e. information, currency, assets, etc.). Businesses implementing blockchain into their current activities create more transparent and open atmospheres, not to mention automating a lot of processes that are handled manually today.
Financial transactions are validated in seconds by an entire network of computers, making it a safe environment for businesses. Information is made public in a moment and can be verified at any time, creating trust. But more importantly, the need for intermediaries such as banks disappears. Thus, all the percentages lost on commissions and administration fees disappear as well, reducing costs significantly.
This is basically a step ahead in process automation, paperless currencies and transactions without the long waiting for validation processes to be completed.
Who is using blockchain now?
Many large companies such as Microsoft, IBM, and Amazon are already offering blockchain solutions. They help businesses understand and start using blockchain in their daily endeavours.
Microsoft introduced blockchain in Azure. Azure is a set of cloud services used to create, launch and manage mobile and web applications. One of the solutions provided by Azure is blockchain and it is meant to help business understand and use the technology.
IBM created a tool simply named the blockchain platform. This platform helps businesses migrate to IBM’s own blockchain. They have already worked with more than 400 clients around the world.
Are governments embracing blockchain?
Governments, so far, have fought to regulate cryptocurrencies in an effort to avoid drops in the market due to the currencies’ instability and other risks. For example, posny schemes such as Bitconnect are already creating victims thus creating a stigma around the technology.
In February this year, Indian finance minister Arun Jaitley stated:
“The government does not recognise cryptocurrency as legal tender or coin and will take all measures to eliminate the use of these crypto assets in financing illegitimate activities or as part of the payments system”
However, when it comes to blockchain, governments have shown signs to at least try to embrace it. Just to give a few examples, in the U.S., The Department of Homeland Security awarded $199.000 to a company called Factom Inc. to improve the security of digital identity for the Internet of Things devices using blockchain technology.
Estonia has implemented a blockchain-based national identity management system. Reportedly, the system helped reduce time waste and improve quality of the services the government delivered to its citizens.
The United Arab Emirates is aiming to become the first blockchain-powered government in the world. By 2020 UAE wants all visa applications, bill payments, and licence renewals, to be transacted online through blockchain services. The strategy is estimated to save up to 25.1 million hours and $1.5 billion annually for the city and automate the transaction of approximately 100 million documents per year.
Pros and Cons of blockchain
Like with every technology, especially new ones, there are several pros and cons that need to be taken into consideration.
|Transparency. Every transaction is time-stamped and recorded, so it creates a permanent trail that cannot be altered.
Efficiency. Information is always updated and uploaded to the blockchain. This makes it easy to find and problems are solved faster.
Security. Due to the algorithm that blockchain uses to encrypt data, hacking and virtual attacks are harder to perform.
Speed. Not only that information is easier to find and validate, but it also cuts the middle-man. Thus the time needed for traditional transactions is considerably cut down.
Saves money. Likewise, cutting out the middle-man will also save significant amounts of money in commissions and administration fees, and more.
|Performance. The technology is still very new and while it is expected to do great things, they are still to come.
Costs. Mining cryptocurrencies consume a large amount of power, creating great electricity costs. The Bitcoin cost per transaction has peaked between $75 – $160, mostly due to energy consumption.
No regulations. Due to their nature, cryptocurrencies are hard to regulate. This causes instability in cryptocurrencies that can disrupt the market. This can make organizations and governments sceptical towards blockchain based technologies.
Risky. The market already witnessed a posy scheme taking money from investors. Because the technology is little understood by many, chances are, there could be more trying to take advantage of the naive.
No intermediaries. Cutting down the middle-man can be a good thing. But, like with every technological advancement, it means taking jobs from people, possibly resulting in higher unemployment.
How blockchain affects our future?
Most industries, if not all, will get massively disrupted from blockchain. To name a few, here are some examples of how blockchain will affect some industries:
In most developed countries it is possible to access medical records and check patient histories online. However, most often than not, this information is only available to organizations in that specific country. Accessing it from another country can be difficult and time-consuming.
Blockchain can make this vital information available wherever the patient would be. Not only that it will update in real time, but it makes it possible for patients that are relocating, or simply in vacation to continue their treatment in a safe and quick manner. They could simply go to a hospital, give them access to their records and receive treatment right away. No need for testing again or spending money on unnecessary procedures.
For the financial industry, introducing blockchain will probably have the most visual effect. As we mentioned, cryptocurrencies do not rely on any governments or organizations. Also, they are digital currencies, so no more banknotes or coins. This does not mean that in the future we will not use or need banks. But we will need them considerably less forcing the banking industry in a full reform.
Cutting the intermediaries from financial transactions will also mean that costs are going to drop at least on large investments, such as buying a house or a car.
Finally, to produce the 1$ bill in 2018 costs 5.6 cents per bill. If governments would switch to cryptocurrencies, the U.S., for example, would have saved $861.7 million in 2018 alone. This money could have been used in healthcare, infrastructure, education and literally any other industry.
In the light of the U.S. 2017 election fraud scandal, voting would be one branch where blockchain would revolutionize the system. Corruption would drop since the votes would be validated and counted the moment they were placed, and they cannot be manipulated.
Also, voters could vote from home, no need for ballots, no need for staying in lines. More importantly, voters abroad would not need special registration month ahead to vote. Blockchain could actually increase the average voting rate, encouraging citizens to engage more in their country’s political future.
The uses of blockchain technologies in the corporate world are limitless. Blockchain could allow digitalizing the entire value chain from production to sales. Companies would know exactly where everything is in real time and, although that is fairly possible without blockchain, this technology would validate the data instantly. Therefore, blockchain makes avoiding surprises more easily.
The decentralized network consists of hundreds of thousands of nodes that all keep a copy of the ledgers stored in it. This renders cyberattacks nearly impossible. Because the data needs validation, a hacker would need to somehow trick an entire network with a false copy of the ledger, which is almost unthinkable.
Here is a more detailed list.
For consumers, blockchain eliminates the need for intermediates and therefore lowers costs. It allows individuals to make transactions of any kind, directly, with no third parties taking a cut. Therefore, save money otherwise wasted on unnecessary fees and commissions. Simply put, blockchain puts the power in the hands of the people as opposed to in the hands of central organizations.
For companies, blockchain allows for more effective and efficient ways of managing, storing and handling data. At the same time, it provides the astonishing risk-avoiding, cost-saving potential. There will be new business opportunities for those who are willing to adapt and who seek blockchain technology to solve many of the internal issues within companies and worldwide.
Governments can take advantage of many opportunities as well, in perhaps even more areas than we can even imagine now. Given the late developments in regards to Dubai’s ambitions, it seems that more will come this way. Whether it is to gain access to cryptocurrencies, voting system implementation, more secure identification systems, or all of the aforementioned combined, it looks like more will follow.
Only time will tell how far blockchain can go, but one thing is for sure, Wiredelta is following the data revolution closely, and blockchain is currently front-and-centre of that movement.