There’s a revolution brewing that the layman is not really aware of, and it’s a changing the face of digital financial transactions – and perhaps much more. Its origins remain a mystery. Created by someone (or a group, as many claim), with the pseudonym of Satoshi Nakamoto, the blockchain was brought into being in 2008 to serve as the public transaction ledger for bitcoins. It has applications in areas beyond crypotocurrency, and it is being enthusiastically embraced by the financial services industry.
But what exactly is blockchain?
Imagine information on a spreadsheet, but the spreadsheet is duplicated thousands of times across many computers in diverse geographic locations. If the spreadsheet is updated, a new ‘block’ of data is added, and it is simultaneously updated everywhere. A same picture is presented to viewers across the world. It is cryptographically secure and no data can be clandestinely removed or changed without the knowledge and consensus of all parties.
And there is no single server vulnerable to the hacker, all the data is easily verifiable and continually reconciled. It’s safe.
To quote Don & Alex Tapscott, authors of Blockchain Revolution*, “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
The immediate banking applications for blockchain technology are financial transactions like money transfers. Say you are sending money from a small town in Texas to a small town in India. The transfer is handled by at least 3 (and possible more) banks or financial entities before it reaches the transferee’s account. The transferor’s account is checked for funds, service charges are applied, and currency conversion takes place.
In a blockchain, each of these sub-transactions is represented as a digital block that needs to be verified before it is allowed to enter the system. And a record of every step is securely communicated to all the participating banks – nothing can be edited. Every bank knows exactly who did what, and when. Transparency is absolute.
There are many other uses of the blockchain. Australian Securities Exchange, for instance, is moving all its post-trade clearing and settlements to a blockchain system.
Trade finance with its letters of credit and bills of lading can be an obvious beneficiary of blockchain technology. The current system almost entirely paper based – and if goods are being shipped from China, for example, as many 50 people need to access the data.
So what can blockchain technology do outside the financial arena? Medical records, for one. In this day and age where medical diagnosis (and even treatment) is often being done from a remote location, a complete medical history is essential. A history from which no detail has been accidentally omitted. Absolutely ideal for a blockchain. What about privacy of the patient’s medical data? The blockchain can be double-encrypted so that only the attending physician with the password or digital fingerprint can access sensitive information.
Many big shopping chains are gearing up to incorporate the blockchain in their food management system. Why? Because one of the critical questions that we should ask whenever we consume anything is: “Where is this food coming from?”
In 2006 , there was a major E-Coli outbreak in the United States. Almost 200 people were affected, of which 31 developed a type of kidney failure called hemolytic-uremic syndrome. Ultimately, 3 people died in the outbreak. It quickly became clear that all the victims had eaten spinach. But from where?
The supermarket chains and the food industry as a whole panicked – spinach went off the market across the country – causing huge commercial losses. It took the US Food and Drug Administration (FDA) weeks to trace the source of the spinach – grown on just one farm. Deaths, disruption, financial loss – all could have been prevented with blockchain technology.
Some observers remain skeptical. More than one tech guru believes that the blockchain has been hyped, that the claims are unrealistic, that it’s a passing fad. But interest is not abating – rather, speculation is expanding to newer areas. Smart property, where every detail is recorded in a land registry and is accessible. Music distribution, so that the artist can control (or at least be aware) of how a song is being used. Insurance…
…the list is endless and the future is blockchain bright.