Blockchain is coming. So we may as well all prepare for it. This is the consensus among technology and financial industry forecasters.
So what is it? You have probably heard of Bitcoin. You might have heard of Ethereum. If so, then you already know about blockchain in a subliminal sense. Blockchain is the framework behind the digital transactions of cryptocurrency. It is an elaborate system for keeping records and it is based on graph databases; that is, a database where select entries and attributes are shared among many users.
Cryptocurrency is just the beginning of blockchain’s uses. The likes of the Bank of Canada, JP Morgan, the London Stock Exchange Group, IBM, The Swedish Landmateriat (land registry) have all launched studies on using blockchain on everything from financial transfers to land titles.
But at its root, blockchain is a system of logic that proves ownership.
The Blockchain Concept
Without getting into the technical structure of blockchains, these are main principles the technology is founded upon:
1. Blockchain is a peer-to-peer network. Transactions are made through an internet software platform (such as a Bitcoin wallet). Therefore they are publicly accessible and available for interrogation to those who are on the platform.
2. The details of blockchains are, however, highly encrypted. Only those who are parties to the transaction can see the full, proprietary information.
3. Every transaction completed on a blockchain can be traced to its related connections in the database (hence the “chain” portion of the moniker).
4. Once a transaction has been made and all parties agree to it, the record cannot be altered. Therefore, you know who did what and when.
5. If any changes are made to a blockchain agreement, all other interested parties are alerted. A deal cannot be completed without consent from all interested parties.
6. All those parties who have an encryption key for a transaction, and the related blockchain of transactions, hold a record of the transaction.
If we are to give a visual analogy, the database of a blockchain is like a three-dimensional web of connections between computers. We refer to these points of connection as nodes. The nodes are where transactions are completed and blockchain information is stored.
In the case of Bitcoin, the blockchain keeps a record of who has Bitcoin and how much they hold. It is all traceable and verifiable.
The Significance of Blockchain
While a theoretical visualization of the blockchain helps us understand the concept, the implications of using blockchains are far more crucial.
1. Trust. If the blockchain is unchangeable and can be inspected, it gives assurance that the party you are dealing with has credibility and ownership of an asset.
2. Agreement. At the completion of a transaction, all parties agree on the value and the terms. At the conclusion of the deal, the terms and obligations are set and unalterable. They are in the record of the blockchain forever.
3. Directness. Each party can transfer money or assets to each other directly. This increases the speed of transactions. There is no waiting for a third or fourth party external party, like a bank or a broker, to approve the deal.
4. Fraud prevention. In the case of a monetary transaction, it cannot be completed unless the buyer actually has the money in his account. It prevents both the common mistake of overdrawing from your account or, more seriously, willful fraud.
5. Reduced errors. The blockchain information is secure because it has been stored on many nodes, not just one central location. A single agreement made online is carbon copied many times over. All parties to the agreement have the same document. There is no variance. The blockchain is the final arbiter.
Bitcoin pioneered these ground rules for blockchain. Leading thinkers and innovators realized that the principles of trust, traceability, and efficiency underlying a blockchain can be applied to numerous problems of trade and commerce. Supply chain management, contract trading, and transferring land titles are just some of the possible blockchain applications being put forward.
GuildOne has been researching and testing blockchains for over two years and we see tremendous potential in using the technology to build on what we already do: interrogating multiple databases to make sure the data is in agreement. Blockchain is a new way forward in our methods and we have some exciting product announcements and projects coming very soon.
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