Forget Bitcoin, Blockchain technology is much bigger

Original Post
All Credits to – ALEX SIMS

OPINION: The extraordinary rise in Bitcoin’s price recently has been likened to tulip mania.
The cybercurrency’s energy usage is also causing alarm.
It is hard to find a person who has not heard about Bitcoin.

In contrast, comparatively few have heard about blockchain technology, yet blockchain promises to change society and the economy even more than the Internet.

What is blockchain technology?

Most people have already come across blockchain without realising it: Bitcoin operates on a blockchain. (Bitcoin created the first blockchain.)

Just as there are hundreds of other cryptocurrencies besides Bitcoin, such as Ether, Litecoin, Dash and so on, there are hundreds of blockchains.

These other cryptocurrencies do not use the same amount of energy that Bitcoin does. Litecoin and Dash, in particular, are much better to use for payments as they use less electricity, have lower transaction costs and are considerably faster.

A blockchain is a ledger or database with three key features.

First, a traditional ledger needs to be kept secure, you don’t want unauthorised people making changes. With a public blockchain, such as Bitcoin, anyone can download a copy of it. Moreover, copies are held by hundreds or even thousands of computers and are all updated automatically at the same time. (“Copies” is a little misleading as there is no master copy.)

Second, unlike a traditional ledger where someone can go back and make changes that were difficult, if not impossible, to detect, a blockchain is immutable and cannot be changed. If a change is required, for example to show that the ownership of 0.001 of a Bitcoin that was owned by X is now owned by Y, the transfer of ownership will be appended. That way of the owners of the 0.001 can be traced. Thus blockchains provide an immutable audit trail.

Third, before X can transfer the 0.001 to Y, the blockchain is checked to see whether X owns that Bitcoin. If more than half the copies say yes, then the Bitcoin will be transferred. This validation system means that a blockchain is safer than single databases which can be hacked and have money stolen from them.

Blockchain technology can do two things.

First, it can make existing processes more efficient.

Second, it can disrupt industries.

Take aid sent to third world countries. Currently not all aid payments get to the right people due to corruption. Blockchain can solve this by using radical transparency so that the money can be traced the entire way.

Alternatively, the actual charity can be done away with. People may want to donate to people affected by earthquakes. A smart contract (a self-executing computer programme) could be written that takes information from Google searches, Twitter and also reputable news providers, so that once an earthquake over a certain magnitude occurs payments are made automatically to all those living in the area.

The use of smart contracts is seemingly endless.

Take a container load of Manuka honey exported to Europe. The container could be fitted with an IoT (Internet of Things) device and a smart contract set up so that once the container reached its destination port the agreed payment would be made instantly.

Even better the smart contract can be programmed so that instead of the supplier receiving all of the money, the payment is split between the supplier, the bee keepers, the trucking firms, the shipping line, the IRD and others.

Moreover, the Ministry for Primary Industries could be granted permission to see into blockchains allowing it to monitor exports and imports in real time.

For individuals, blockchain can enhance our privacy. Instead of our personal health information being held by GPs, doctors, insurance companies and the like, blockchain allows individuals to keep such information and grant access to others to view it.

For those businesses worried about information being on a blockchain, encryption can be used so only trusted third parties can read it, and/or permissioned ledgers can be used where only certain people are permitted access to the blockchain.

IBM is trialling Hyperledger Fabric, an open source permissioned blockchain, for many clients including Walmart and even the New Zealand company KlickEx.

The potential impact of Blockchain is hard to overstate. Billions of dollars are pouring into blockchain technology across many different industries.

I have yet to come across an industry that could not potentially use Blockchain in some way.

The technology is still very much in its infancy, however. It is where the Internet was around 1994, but the developments in blockchain are far more rapid than the Internet’s.

Each year of the Internet’s development is four or five in Blockchain. Indeed, Blockchain is just the start of the distributed ledger technology (DLT) revolution, for example, as IOTA’s “Tangle” makes Blockchain look simple and outdated.

Despite Blockchain’s being in its early days, it would pay to learn more about it. Be warned, though, it is very easy to go down the rabbit hole.
Associate Professor Alex Sims is from the University of Auckland Business School. Sims is completing a project funded by the New Zealand Law Foundation on the regulation of cryptocurrencies.

One Reply to “Forget Bitcoin, Blockchain technology is much bigger”

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