The blockchain is a unique way for a distributed network of computers that don’t necessarily trust each other to achieve consensus. Stephen Pair explains why this is important
New technologies are usually conceived with a specific use case in mind. But often that purpose evolves over time, and sometimes it changes beyond all recognition.
Take bitcoin. It was created as a digital cryptocurrency, but anyone who remembers Digicash from the 1990s will know that cryptocurrencies are nothing new, and several of them have already come and gone. But Bitcoin is different.
The Decentralized Blockchain
Unlike other currencies and payment networks, bitcoin is not controlled by a bank, government, or even a financial institution. Instead, thousands and thousands of computers around the world independently verify encrypted transactions and manage a decentralized ledger of every transfer on the network. This ledger can be accessed online by anyone.
Crucially, while records can be added to the ledger, no existing transactions can be changed or removed. It’s a permanent record that cannot be corrupted. The ledger essentially creates a trail of financial DNA which removes the possibility for fraud, theft or compromising sensitive data.
This open-source technology which underpins the entire bitcoin ecosystem is called the blockchain. It is a unique way for a distributed network of computers that don’t necessarily trust each other to achieve consensus. But why is this so important?
Commercialization and Control
As the internet has become increasingly commercialized over the years, we have witnessed a growing centralization of network infrastructure, with power and control concentrated among a small number of very wealthy corporations.
This has led to legitimate concerns about net neutrality and the ability of ISPs to control the web and tap into private user communications. As a result of well-publicized cases where user privacy has been violated, many internet users are becoming increasingly skeptical of how companies and government organizations are using the internet to track and analyze their behavior online, as demonstrated by the court case Google v González which eventually led to the ‘right to be forgotten’ becoming established in law.
It’s an issue of eroded trust. Trust between consumers, between businesses, between organizations and between governments has been broken down. The blockchain has the power to remove the need for trust in any third party, as every device involved in the public ledger must work to reach a consensus.
“Why stop at reinventing currency? Why not decentralize passports, health records, and contracts too?”
As we shift to a world where being able to pass information as well as funds fast, securely, and without manual checking becomes a key determinant of competitiveness, I believe the blockchain is exactly the kind of innovative technology individuals and companies alike will increasingly depend on.
For example, Overstock CEO Patrick Byrne believes a new financial exchange based on the blockchain will eventually replace stock exchanges worldwide. But why stop at reinventing currency? Why not decentralize passports, health records, and contracts too?
The Blockchain Beyond Bitcoin
One couple in Florida decided to commit their marriage vows into the blockchain, recording them for posterity and preserving them for future generations of their family.
But more seriously, blockchain technology can benefit all sorts of organizations from mortgage lenders, to police departments, to banks and lawyers – enabling them to quickly, securely, and permanently store and transfer information – without depending on a middle man.
Chain.com for example is already enabling developers to harness blockchain technology, with a fifth of projects currently focusing on non-financial uses such as verifying signed documents. With blockchain solutions, physical photo IDs, proof of address or ownership could all be digitally recorded.
There is certainly investment into funding alternative uses for the blockchain. In December 2014, PeerNova raised $8.6m to bring its vision of enterprise applications built on the blockchain to life. Its President and CCO highlighted uses such as file storage, identity management, and asset transfers as potential avenues to explore.
When will the public at large start using blockchain technologies in their daily lives? Little by little, it has already started to happen, and I believe that now is the perfect time to change the way that all transactions – financial and otherwise – take place online. Blockchain technology has the power to create a more secure, fairer, more efficient system and we’re only just starting to explore all the ways it can be used.