At a technical level, ‘Blockchain’ could be described as cryptographic technology that, by operating a distributed ledger (a ledger residing across multiple locations), allows for secure, transparent and immutable peer-to-peer transactions. Whilst coming into prominence as the underlying back-bone technology behind the popular and somewhat controversial ‘Bitcoin’ cryptocurrency, the technology itself is open source and can theoretically be applied in any industry.
What does this mean in practical terms (without too much of the tech jargon)?
To transfer an asset a present-day transaction typically requires a buyer and seller (or similar) to communicate the transaction to a trusted third party who then records the change of ownership (e.g. banks, land registries, etc). Blockchain could change the way businesses and consumers transact. In a blockchain transaction, a buyer and seller will broadcast a transaction to a broad network of participants who each maintain a separate ledger of asset ownership and verify each transaction in the chain of transactions. A ledger is held at each participant node location (i.e. computer) and the most common ledger across the network is accepted as the correct 'true' ledger. There is no single point of failure (e.g. a single corrupted ledger or ledger showing a discrepancy would simply be ignored). The main advantage of a distributed ledger is that the process establishes trust and potentially removes the need for a trusted third party to any given transaction.
Where could we see this technology being applied?
There is potential for this technology to solve inherent transaction recording issues that currently exist within different organisations across a range of sectors. The benefit of cutting out the 'middle man' operators in any given transaction process has, not surprisingly, prompted real interest from business leaders and strategists across various sectors with think tanks set up to consider how the technology could be further developed and implemented to achieve efficiencies and cost savings. Serious money is being invested, as blockchain start-ups climb over each other to become the major disrupter of 2016.
To provide some practical examples of potential uses across different sectors:
- Financial services – The technology could be the game-changing disrupter to the role of banks, stock exchanges and payment processors as intermediaries of transactions. These organisations are already looking to better understand, lead the way and own blockchain innovation rather than risk becoming casualties of its success.
- Retail - In an e-commerce setting, the technology could change the way consumers pay retailers for products and services online - think low cost instantaneous micro-payments without intermediaries? In a bricks-and-mortar setting, the main attraction is cutting out intermediaries that currently take a slice of the action in B2C purchases.
- Government – Transforming land title registries? A method of maintaining incorruptible and de-centralised voting records?
- Health - A secure method for patients to own, access and transfer health records, which cannot be altered retrospectively?
- All sectors – Self-executing ‘smart contracts’ (a computer protocol that facilitates the enforcement of a contract) - Perhaps not the death knell for lawyers (hopefully!), but this will no doubt introduce new skillsets and challenge the present-day legal frameworks.