Blockchain is gaining grounds among a variety of industry players. From the stock market to entertainment, and every industry in between is experimenting with blockchain technology; and there are many to follow.
Blockchain became popular with the emergence of Bitcoin, a digital currency system. The epic escalation of Bitcoin in 2017 to the value of US$19,783.21 made it popular overnight even among its skeptics.
The question is—How can this internet money disrupt today’s businesses and markets? The answer lies in not thinking about Bitcoin as the currency system, but as a technology.
Three qualities of blockchain technology make it special; and strengthen the products (such as Bitcoin) it supports. To understand these, let’s go back to its roots.
Nakamoto’s Three Problems
Satoshi Nakamoto (a pseudonym) who launched the Bitcoin project, was faced with three puzzles before Bitcoin could be brought to the real market. While these questions were asked in the context of digital currency, answer came in the form of blockchain technology which had universal applications.
The first problem was, how do you create a digital unit of currency which can’t be copied. Say, you could photocopy money to buy things. That would create a huge problem of hyperinflation where the currency loses its value (take Zimbabwe for instance where one loaf of bread costs millions in their currency). Replicability disadvantages the possessors of a currency and it’s never able to gain market trust.
Not reusable, but transferable
Another issue was of preventing reusability. For bitcoin to become a currency, it had to be ensured that a person can’t use the same bitcoin twice, while making it transferable and usable for the second party to which it is transferred.
This problem doesn’t arise with physical currency as it is tangible, but since digital money is intangible and remains with the owner even after the transaction, guaranteeing it’s not used again was another puzzle for Nakamoto.
Maintaining authenticity without a centralized authority
The third and final piece of the puzzle was most critical. The aim was to create a currency system that doesn’t require a central authority to authenticate the transactions. In the digital world, how do you verify the transactions? And who verifies it in the absence of a central body?
Blockchain Technology—The Magic Formula
All of these concerns boil down to the issue of privacy and authenticity in the digital world. Blockchain presented itself as the magic formula and answer to these three vital problems.
Blockchain lets people with no familiarity with each other and without any middleman or central authority to deal with each other. The participants in the blockchain system collectively maintain the ledger. This ledger keeps an updated record of every transaction. The transactions are recorded but encrypted with long codes.
Every transaction using bitcoins form a chain. It takes mathematical scrambling by people’s computational networks to verify each transaction which disavows the need for a central authority. The greater the number of users involved in the transaction dedicate their computing resources, the harder the problems become. Where banks take hours and days to verify a transaction, this system verifies any block of transaction in around 10 minutes. It is fast and thus minimizes errors. These swiftly changing codes of make the replication of transactions near to impossible.
This way, blockchain tech came to create new standards of confidentiality in technology, with no need for human involvement and central authority.
Spillover Effects and Becoming of Blockchain Industry
The takers of blockchain are expanding and it is creating a blockchain industry around itself.
Facebook, IBM, Microsoft, and Amazon are advertising job openings for blockchain engineers. In October 2018 CNBC reported, the demand for blockchain developers and engineers is increasing without pause, and they are being paid the highest in software development roles. Some prominent inroads made by blockchain include:
- Use of blockchain for creating tamper-proof public databases say land registries.
- For documentation, financial and law firms are using blockchain as a record of the sharing of documents and tracking who owns what. This tech is being trusted more than internal ledgers.
- NASDAQ, American Stock Exchange, is also heavily investing in startups based on blockchain technology. It eventually aims to record security trading of private companies through blockchain.
Spread of blockchain threats those in trust business, including bureaucracies, government and clearinghouses, but as with every tech, for every disruption it makes, it is expected to create new roles and an improved world.