While the concepts of cryptocurrency and blockchain have been around for years, it wasn’t until Bitcoin’s recent and dramatic explosion in value that these terms became mainstream. Once the digital currency peaked at nearly $20,000 in early 2018, the market was primed for an influx of other cryptocurrency, blockchain and microtransaction organisations looking to cash in on this new marketplace.
In this article, we are going to dive into what blockchain is, the concept of triple-entry accounting, how this impacts the world of money and finance, IoT and microtransactions, and lastly, some important forces that are driving blockchain expansion and adoption.
First off, what is blockchain? Blockchain is the technology behind Bitcoin and it was invented for Bitcoin in order to create the first truly online virtual currency. At its core, it's a data storage mechanism that's implemented by a basket of technologies including distributed computers – so, the blockchain really exists all over the world without a centralised authority. In this model, those computers are working together to create a consensus to securely verify every transaction. By having a consensus mechanism, the blockchain is protected from having any one actor, good or bad, affecting it.
Blockchain is valued because the technology renders it immutable/unchanging and “trustless”, meaning there is no central authority, the blockchain is the authority.
Bitcoin uses the blockchain to create “money” on the internet and allow money to change hands. But once that blockchain is in place, it can be used for things other than money changing hands and any kind of contract or transaction might be recorded on the blockchain. The blockchain is ideally suited for these sorts of interactions because it's distributed, has a consensus mechanism in place, is immutable, and is secure.
What are blockchain’s implications for society?
We tend to hear about the financial or technological impacts of blockchain in the news, but Blockchain technologies have the potential to impact and revolutionise other aspects of society also. In fact, it’s reaches, through transforming financial transactions, has the potential to change organisations and individuals over the coming decades. It is critical that IT leaders understand the implications of blockchain technology to prepare.
Prosperity and economic inclusion
Many people have posited that blockchain could help eradicate poverty, stabilise the world economy or prevent economic crisis. In many parts of the world, people’s personal wealth is stored in things like livestock or land and not traditional financial tools or institutions.
In these situations, a move to both virtual currencies and to representations of assets on the blockchain and corresponding transactions will allow banks (both local and remote) to have visibility into someone’s net worth in a very different way.
Let’s break this down. Being able to create savings and stored value is a primary means to prosperity. In developing countries, where access to banks can be difficult Blockchain and other virtual currencies represent a way to store and transfer value that detach people from traditional value stores, such as livestock, that are susceptible to the perils of nature and other men.
If a poor farmer creates a digital wallet and trades his goods for digital currency, then he begins to develop a value store that can be saved or spent, as he sees fit. All he needs is a mobile phone and a digital wallet and he has the means to begin to create a store of value that is safer than his current alternatives.
Positive impact for representation of asset ownership
If land ownership in a country were recorded on the blockchain, all sales of land would be transactions and a person’s accumulated real estate holdings would be 100 per cent transparent and visible to a lending institution. So, a person’s ownership of that land would not be in dispute and would be 100 per cent visible to lenders.
This type of blockchain-assisted asset ownership and tracking not only helps the individuals who can now more easily prove their ownership to those both local and remote, it also benefits society because the transactions are no longer subject to middle men or corrupt local government officials taking a cut. The policy can be set at a high level and blockchain ensures that the policy is executed correctly 100 per cent of the time.
Now, individuals can access services they couldn’t before. In turn, banks and other financial institutions are more interested in transacting with them and potentially loaning them money because they have a clear understanding of who that person is and their financial status.
Could blockchain eliminate remittances?
Today, remittances are money transferred from an immigrant working in a developed economy to friends or relatives at home in a poorer country. Remittances are very important to the economies of many developing countries, but they come at a high price and they come with substantial fees. Blockchain allows individuals to transfer currency instantaneously and without the need for the middle men that today’s networks and wire transfers require.
Beyond finances, blockchain changes the game when it comes to information ownership
Another growing usage of blockchain is in the storage and control of information. Today, our personal information (search history, medical records, fitness tracker data) is controlled and monetised by third-parties.
Google uses our searches and online behaviour to track us and sell or screen real estate to advertisers based on our interests. Grocery stores track our purchases and sell that information to manufacturers.
Almost everyone is collecting (and monetising) data about you. If you use a free service or product then you are the product. It may be your attention that is being sold -- that is your use of the product comes with ads and the maker of the product gets money by delivering your eyeballs and attention to an advertiser.
Also, your behaviour is tracked by that product or service, in which case the maker is monetising you by knowing things about you, tracking your behaviour, linking those two things together, and then selling that data to third parties.
In both cases the maker benefits by monetising information about you.
If, instead, our personal information is stored on the blockchain and linked to our digital identity, we would control who could access it. This would allow individuals to sell or lease their own information and get value in return.
Instead of a very large advertising agency selling your data, you could decide to sell it (or not) and receive some value in return. You could provide your fitness data (also tied to your digital identity to the blockchain) for money or perhaps you could provide it to science to benefit humanity. You would be in control of the information. You could decide to provide it and get value in return or not provide it and maintain your privacy if that was of higher value to you.
There is nothing that says that these large corporations are entitled to your data. You simply have agreed to let them have it by using their free products and services.
You would need to change your behaviour and use a different set of tools, which may cost something up front to retake control of your data, but there are no technological obstacles to creating such technology and storing your data about you and owned by you on the blockchain.
Such a system also offers a more secure bulwark against identity theft, without the need for a third-party monitor. The blockchain is the security and the monitor.
Possibilities for reforming elections and democracy using blockchain
Another, non-financial record which we’d like to be correctly recorded (publicly, immutably, safely) is our vote in local and national elections. In today’s climate, there is great interest in ensuring free and fair elections around the world. Votes recorded on the blockchain offer a technological path to better, faster elections.
A vote is a unique type of transaction that we record to implement our democracy. A citizen has the right to vote to elect candidates, ratify some types of legislation, and make changes to fundamental forms of government. It is how a democratically elected government operates with the consent of the governed. It is our consent and our influence.
But at its core it is a transaction and could be recorded on the blockchain. The blockchain would guarantee identity of the voter, would ensure that votes were not cast twice, would provide for a nearly instantaneous count of the vote, voting could occur using phones or other technology, so you could reduce the cost of elections significantly because you would no longer need physical locations or paper ballots.
A country with the digital infrastructure (mobile devices and an acceptable cellular network) has the tools to implement a democracy based on the blockchain.
With all this growing groundswell around blockchain technology and digital currencies, there are naturally forces at play driving some of the uses described here. Where there is money to be made, businesses and free markets will be close behind. Whether you are looking at the value to consumers, the value to financial institutions, or the value to people participating in the economic systems generated through blockchain, organisations are looking to capitalise on this new value opportunity -- banking, remittances, savings and asset ownership all can benefit a smart organisation that brings them to the right market at the right time.
This has the potential to reduce economic disparities around the world as new businesses and consumers participate and gain access to financial services.
The additional scenarios described here around elections and personal information will require investments from companies, individuals, and governments to make them happen. There is still economic value in these technologies, but individuals will have to make smart choices, CIOs and IT leaders will need to look for innovative ways to facilitate the adoption of blockchain across these areas and industries. There’s no question, blockchain is and will continue to transform the world we live in.
Jonathan Fries, VP of Software Development, Exadel
Image Credit: Zapp2Photo / Shutterstock