The first unveiling of blockchain technology emerged when Bitcoin first launched in 2009 as a method of secure and direct payment between two parties over the internet. As its usage and understanding of the technology behind it began to grow banks became increasingly worried about being cut out of the loop.
Technology Concepts of Blockchain
To understand the potential and pitfalls that come with blockchain we must first understand two critical concepts that make up the technology, in the case of bitcoin:
A decentralized ledger means there is no single point of failure (SPoF) to a transaction, in essence cutting out the middle man (banks and by extension, bank fees). Imagine a mesh of users (peer-to-peer network), who all get a permanent, validated copy of the transaction data. This type of record keeping makes it very difficult to make changes to any data once recorded, as these changes would need to be applied to subsequent blocks, which would require consensus of the network majority.
Once data on the blockchain is recorded, it essentially becomes permanent and unalterable by achieving decentralized consensus.
The second concept is encrypted and interlinked data. In the public blockchain, transactions can be seen by everyone, but they are encrypted in the header of the data block. If a transaction has changed it can be identified in the block header. Each block includes an encrypted hash from the previous block, which includes the block before that and the block before that, linking them together to form a chain all the way to the originating block.
Through the use of cryptography, all blockchain records are secured. This is achieved by assigning a private key per transaction for the participants, thereby acting as a digital signature. Should any record be changed, the signature will be nullified, and notification sent to the network.
Together, these two features solve the problem of sending value across the internet in a way that is safe, even when the parties involved don’t know one another.
Expansion Beyond Banking and Financial Services Industry
The disruptive nature of the blockchain creates a goldmine for all industries via disintermediation (removal of the SPoF) and immutability (permanence). By 2025, Gartner predicts blockchain will create 176 billion dollars in business value and increase to 3.1 trillion by 2030.
The effort has expanded well beyond banking and financial services industry:
- Walmart (Retail): Asset tracking from manufacturing to end user, to be expanded to perishables.
- Royal Mint (Public Sector): Asset tokenization of real assets to be traded on digital markets.
- Synereo (Communications & Media): Content distribution tracking and monetization of original content use back to the original creator.
However, implementation of industry blockchain solutions do present their challenges, most commonly:
- Platform: Current technology is not scalable or complete.
- Business: Solutions require active participation and convincing ecosystem competitors to cooperate.
- Data Inoperability: Industries need to agree on a common structure and data format.
- Solution Challenge: Complex and powerful solutions consume huge resources to build.
Questions to Ask Before Investing in Blockchain Solutions
As organizations are scrambling to learn how blockchain may help create value, it is important to understand the true business value before making the decision to invest. Four questions we like to ask are:
- Is there a strong business case?
- Will there be an ecosystem in place to support it? Is success dependent on other firms cooperating?
- Is there technology already available that can perform the same functionality?
- Are the required skillsets readily available, or can they be?
Without a doubt, blockchain stands to create tremendous value across industries and as companies race to take advantage of the technology we’re eager to follow where and how it will be most successful.