If there’s a list of the top 10 rules of technology, the number one rule is probably this: You’ll hear a lot of talk before you see what all the talk is about.
This year, the most hyped new technology you’ve endlessly heard about is likely blockchain, a technology that barely exists outside the shady world of cryptocurrency. But blockchain is no overhyped buzzword. It’s real, it’s here and it’s going to change the way business is done on the internet.
Blockchain is not a brand-new concept. Computer scientists suggested that it was possible to build a cryptographically secured chain of computer code as far back as 1991. But the “blockchain,” as it is known today was conceptualized by a person (or group of people) known as Satoshi Nakamoto around 2008. The mysterious Nakamoto used blockchain as a core component of the cryptocurrency bitcoin, making it possible to conduct transactions on the internet with no bank or central authority.
So What is a Blockchain?
The short definition of blockchain is that it is a network of computers that polices itself. The slightly longer definition is that it is a continuously growing list of computer code, called blocks, which are linked (chained) and secured using cryptography. Each block typically contains an encrypted copy of the previous block, a timestamp and transaction data. That means a blockchain cannot be modified or manipulated without leaving a digital trail. It is, according to the Harvard Business Review, "an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way."
In a blockchain system, the ledger is replicated in many identical databases, each hosted and maintained by an interested party. When changes are entered in one copy, all the other copies are simultaneously updated. So, as transactions occur, records of the value and assets exchanged are permanently entered in all ledgers. There is no need for third-party intermediaries to verify or transfer ownership. Stock transactions, which can take more than a week to settle in today’s world, could be executed within microseconds, often without human intervention.
In theory, blockchain could slash the cost of transactions while making all forms of digital transactions more secure and auditable. Financial services will obviously benefit, but other industries like manufacturing should embrace it as well because it could make supply chains more efficient and easier to track. In the near future, a smart contract might send a payment to a supplier as soon as a shipment is delivered.
The Harvard Business Review says blockchain will “create new foundations for our economic and social systems.” For example, if you want to buy a ticket for an event from someone you don’t know or trust, blockchain could be used to create a traceable transaction and help ensure that the ticket can’t be counterfeited.
Reason to Be Skeptical
Blockchain believers imagine a world where transactions are decentralized and with less financial regulation. The downside of this vision can be seen in the ongoing collapse of cryptocurrencies. Everyone likes the idea of disintermediation, as taking Wall Street and governmental regulators out of transactions seems to promise a more liberated and frictionless business world. But intermediates and regulators are also a useful and important check against abuse.
With no central authority to create or monitor transactions, anyone can create a blockchain-based currency and sell it online, but there is no regulating authority to watch out for fraud and abuse. For blockchain to succeed, there must be technological and regulatory agreement over when and how the technology can be used.
While Bitcoin’s future is uncertain, blockchain — the foundation of cryptocurrencies — will likely have a long and lasting impact. If you have a modern business, you are making transactions, tracking orders or conducting business online. Blockchain will almost certainly be a part of that business before you know it.
If you’re curious how or if blockchain and other advances in technology will impact your business, take a moment to reach out to the technology experts at the Gordon Flesch Company for a no-cost consultation. Meanwhile, check out our free guide below showing a comparison between in-house vs. outsourced IT to see how you can minimize business risks while helping your workforce perform at peak efficiency.