In our last blog post, The Digital Revolution Today and the One You Won’t See Coming, I asserted that we are in the midst of a new technological revolution that is already disrupting the financial world—blockchain technology. But its genius is not just in how it will shape our lives in the future; it’s also in the way it vastly improves on the ground laid by the information technology revolution that preceded it and the digital transformation that is currently underway.
Digital Technologies Have Fallen Short in Several Ways
Consider any transaction you might make today. Current technology allows transactions to happen almost instantaneously, where you pay a merchant with a debit card, and your bank authorizes the transaction. It happens within seconds. That’s the genius of digital technology. But there are also some serious holes in it.
For example, you trust that your bank, which operates as an intermediary in the transaction, isn’t going to make a mistake in processing the charge. You also expect that your relationships with merchants and banks will be kept private, and the data you leave behind will be secure.
But, in reality, you have no absolute guarantee your transactions will be error-free or private. Banks make mistakes, but they are usually pretty good at fixing them. But, they and some of the top merchants in the country are prone to data breaches, which can eviscerate your privacy. And you can’t control identity theft, which is robbing people of tens of billions of dollars each year. In fact, you could say that in the age of digital technology, our privacy and data are less secure.
Then there’s the issue of transparency. Most people find it concerning that companies are using our personal information to make major decisions on behalf of consumers, governments, and others based on digitally created algorithms. They won’t let anyone inside their black boxes to understand how we’re being treated or manipulated or how the information is being used. It’s both creepy and dangerous.
So, when it comes to trust, privacy, integrity, and transparency in our interactions with businesses, the digital transformation has not effectively dealt with them and, in reality, has made us more vulnerable to a degree.
Blockchain was created in 2007 under the pseudonym Satoshi Nakamoto, a person or maybe a team of people who want to remain anonymous. Their intent was to create a new way of transmitting money without the need for traditional banking networks, also as a means to store data and record transactions in a transparent way that can’t be hacked, changed, or edited.
In essence, blockchain is a permanent public ledger controlled by an extensive network of people with computers called nodes, which means it’s really controlled by no one. There are no central banks or authorities. The nodes from all over the globe record transactions as blocks, which are stacked upon other blocks, creating a blockchain of transactions. When a transaction is recorded in one part of the globe, it’s protected by a cryptographic algorithm and is instantly communicated to and verified by the thousands of other nodes in the network. So, the history of transactions is always current and accurate. Once a transaction is recorded, nothing can manipulate or change it.
As a result, blockchain solves the issues of trust, privacy, data integrity, and transparency. It’s no wonder it’s about to turn the financial world on its head.
A Practical Use Case for Blockchain
To better understand how blockchain might work with typical transactions people make every day, consider the purchase of a house where each block contains information on the house’s history through the years. Currently, when you go to buy a house that’s 30 years old, you might not find out everything you need to know about its history unless you were buying it from the original owner. If it changed hands several times, how could you be sure about the house’s integrity over its 30-year existence? You have to rely on a home inspection to hopefully reveal the water damage from 15 years ago or the section that was replaced 20 years ago due to mold.
But if the records of repairs were stored in blockchain, you could see the unchangeable history of the home’s condition even as it’s passed from one owner to the next. The same blockchain history can be used to track the condition of a car since it was driven off the dealer lot.
Blockchain Has Limitless Potential
Nakamoto had the exchange of cryptocurrency in mind when he created blockchain, releasing the first bitcoin a year later. Bitcoin is now routinely accepted as a currency by a growing number of entities, as are a couple of other cryptocurrencies. Businesses, governments, and other organizations are beginning to deploy blockchain technology to meet various needs, most of which have nothing to do with cryptocurrency exchange.
Blockchain is in its infancy, and the world is just beginning to discover its potential. We have yet to imagine all the ways blockchain will be utilized, but we can be certain it will dramatically change the way things are bought, sold, traded, and owned for the better.