Do you remember a world before the internet?
Ponder this for a moment as you consider just how fast the Internet transformed global communications.
Today, the “World Wide Web” is no longer a phrase of mystery and intrigue. Its existence is as vital as the air we breathe, the food we eat… the water we drink. It is scary to think of how the internet, in many ways, is just as ubiquitous as that omnipresent energy that surrounds us, binds us, giving us the inclination to continuously seek it… trust in it or question it.
Sounding a bit pious?
Well damn that! Because just when you thought we had one pervasive technology understood, here comes another. A technology that like the Internet, may become just as prevalent in our daily lives.
The Blockchain – credited to Satoshi Nakamoto.
Now, there are a considerable number of resources out there discussing what the blockchain is… and what it isn’t for that matter. When discussing the basics of the blockchain, a favorite is WTF is the Blockchain? – A Guide For Total Beginners – Dataconomy. Another, a bit less comprehensive, but easy on the mind is, The Beginners Guide to Blockchain – Global Arena Holding. Regardless of the information source, the content should be somewhat similar, in that a blockchain is a distributed database that maintains a continuously growing set of data records that are proofed against tampering. Simply put, it is a novel way to store data, protect that data, and verify that data’s integrity.
As we invest in, and work with clients involved in the business of blockchain, we’re certainly gaining a greater appreciation for the usefulness and significance of the technology.
The most well-known application of the blockchain, is with cryptocurrencies; in particular, Bitcoin. However, please be mindful… blockchain and bitcoin are NOT one and the same.
With Bitcoin type products, when owners transfer or spend their currency, their digital wallet software sends a cryptographically signed record of the transaction to the global network of bitcoin users. Bitcoin “miners” are then rewarded with new bitcoins for bundling those individual records into blocks and recording them to a permanent and shared ledger called the blockchain. Only blocks satisfying certain properties in relation to the previous block on the chain are considered legitimate. Thus, making it impossible to tamper with records of previous transactions.
Yet, this is just scratching the surface. Blockchains are increasingly being employed in applications other than for digital currencies. Advocates, such as venture capitalist Marc Andreessen of Andreessen Horowitz, or pioneers like Nick Spanos of Blockchain Technologies Corp., believe that this digital ledger technology could prove revolutionary as its uses expand.
And they’re correct!
We also believe that there is no reason why the blockchain cannot be applied to a multitude of asset types, such as commodities and securities (stocks, debt instruments, etc). Further, in Satoshi Nakamoto’s whitepaper he cited that distributed consensus would be a very powerful tool that would ultimately be beneficial to humanity. With that, there are many uses contemplated for blockchain. They include tickets, elections, credit and reward cards.
The bottom line… the blockchain is basically an electronic ledger that is secure and transparent. It records who owns what, who sent what where, and who received it. What is absolutely critical in all of this is everyone’s ability to know with certainty the lineage of a transaction. Also, storing transactions and daily interactions in one automatically shared, tamper-proof database could eliminate the need for traditional clearing house transactions and other complicated procedures now used by banks and other financial institutions.
Technology is currently being developed to allow financial institutions the ability to create their own private blockchains. Banks could, for example, make adjustments to limit the size of blocks, or the speed at which they’re added to the network. They could adjust the software’s security features to keep their blockchains accessible only to their trading partners over a secure network. Simple programs, called smart contracts, can be embedded within the blockchain that define rules for when assets can be transferred. This would facilitate interest and dividend payments and escrow arrangements to be stored in the same shared database as the assets themselves.
With respect to the securities industry, a Wall Street “paperwork crisis” has led to increasing numbers of errors, canceled trades, and financial frauds. Traditional stock and bond sales now take three business days to fully settle, using an intermediary called the Depository Trust Company (DTC). Only then are the assets available in the buyer’s account, and the value of the sale available to the seller. Using a blockchain, records would be automatically shared between all of the parties in close to real time. Each transaction would be settled as soon as it is recorded in the collective ledger and an intermediary would not be necessary.
The possibilities for the blockchain can go on for as far as the mind can imagine, and the benefits seem to be obvious. But of course, as with any new cutting edge technology, enthusiasts will have their hands full pushing its agenda. For blockchain, a technology that has been stigmatized by misuse, misinterpreted due to lack of understanding, villainized by “big brother” type conspiracy theorists, or, even perhaps considered a passing fad by non-believers, assimilation into mainstream use will be a trying endeavor.
Nonetheless, many believe that the “crypto-revolution” is now upon us, will indeed occur, and unlike in Gil Scott-Heron’s day, will be televised! Most likely on Openvision Networks.