Digital Intern, This is Milk
Blockchain technology and its potential impact on commerce and society.
As technology permeates through everything that businesses do, little is left the same. In some cases it's only the tools that are different, but sometimes new technology serves to disrupt and transform underlying processes and entrenched ideas. This is certainly what's happening to the financial sector. 'FinTech' is helping financial transactions become more efficient and customer-friendly and no more so than in the case of the blockchain.
If you've paid for anything using Bitcoin your transaction will be recorded in the blockchain and it is the technology that allows for the digital exchange of value without an intermediary.
At its core the blockchain can be described as a database that records transactions and that database is copied and distributed to every participant in the network. As the number of participants in the network increases it becomes more difficult to override or tamper with the database since it is distributed, making the network secure.
The transactions are automatically verified by members of the network through solving complex cryptographic computations. Each actor and transaction carries unique identification number, reference, and creation date which can make transactions transparent and easy to verify. The features of the blockchain make this technology appealing for adoption since they offer the potential for increased efficiency, transparency, and reliability.
How will the blockchain impact our society?
The blockchain most obviously impacts finance and banking. Banks have been excited about the blockchain since it was introduced in 2008 but it's no longer purely blue-sky thinking. The decentralised blockchain network means that banks will not need a centralised third party like a clearing house. The perceived benefits of increased speed and efficiency and reduced costs have led banks to transition from words to action and 11 major banks, including HSBC, Barclays, RBS, UniCredit, and Wells Fargo, have already been involved in mock trials of the technology trading toy money and shares in a sandbox environment.
What's more interesting is how blockchain could potentially impact other aspects of society. If the blockchain can record financial transactions then it can record other structured information, for example land ownership or changes in citizenship and marital status. Central governments and public sector institutions could utilise blockchain to keep a consistent and distributed database across various locations and all changes will automatically be reflected at each computer that is part of the network.
Blockchain technology could also be pivotal to the implementation and tracking of transactions in the Internet of Things. Banks won't be able to use traditional methods to process the volume of real-time transactions between 'things' such as a street lamps buying electricity from a power station. Furthermore, the security provided by the blockchain could be used for storing sensitive data from power stations and other critical infrastructures.
Lastly, blockchain can be used to address challenges in the creation and distribution of digital content such as entertainment and media. Historically there have been challenges enforcing the fair compensation of artists when their content has been bought and consumed through legitimate channels. Blockchain could cut out the middle men, connecting content creators directly with the consumers of their content. Through blockchain artists can create smart contracts that specify how their content can be used and how much should be charged (or not charged) depending on who the user is and how their content is used.
As with all new technology, there are several challenges to blockchain adoption, such as the lack of awareness and understanding of the technology, privacy, cost/benefit and scalability. However, arguably the biggest challenge is governance and regulation. The technology and community is still quite young and there is no clear leadership or regulatory ecosystem. With that being said, I'm positive we've only just scratched the surface of what blockchain will do for modern commerce. Watch this space...
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(Blog first published 06/09/2016)