By now you are no doubt aware of the thriving world of cryptocurrencies, featuring digital coins like Bitcoin, Ethereum and Ripple. However, you may be less familiar with blockchain: the technology behind the new currencies. Blockchain is to Bitcoin what the Royal Mint is to the banks – except that where the Mint only produces coins and notes, blockchain is capable of many different functions and has almost limitless potential applications.
What exactly is blockchain?
A ‘blockchain’ is a list of records (or ‘blocks’) of transactions, held on a publicly accessible database where the data is encrypted for security, but the transactions themselves are visible to all. Blockchain technology allows for almost instant transfers of digital information, based on peer-to-peer sharing. Blockchain has gained prominence through the rise of cryptocurrencies, which are digital currencies that can be ‘built’ onto the blockchain and shared between members of its blockchain network.
Why blockchain has picked up a bad reputation
Cryptocurrencies have divided opinion. They attract huge amounts of investment but also draw a great deal of criticism. Some nations have started their own national e-currencies or embraced existing ones, while others have declared them little more than gambling and blocked their use entirely. Many of the world’s major financial institutions are investigating the potential of blockchain for the future and cautiously adopting crypto transactions, though very few have made a wholehearted public commitment to cryptocoins.
The original and the largest of the cryptocurrencies, Bitcoin, is one of the biggest reasons for the lack of confidence in blockchain. Though it has proved incredibly successful, with an astronomical price rise in late 2017, Bitcoin has also attracted the most disapproval. It is thought to be ‘shady’ in the way it operates, with its anonymous founder and creator and its lack of openness over transactions – not to mention its anonymous trading feature is commonly exploited by criminals, which has harmed the currency’s reputation. By association, blockchain itself often faces the same criticisms.
Potential of blockchain as a trust-building tool
The reputation of blockchain is certainly unfair. In fact, blockchain is designed to increase trust between parties during transactions. It guarantees three things: integrity of ownership, integrity of the transaction, and integrity of the order. It ends the double-spending problem, and it provides a secure way for unknown parties to trade with confidence.
Beyond this, there is so much potential for blockchain as an information storage and trading platform. While the concept is secure and information held is encrypted, transfers are fast and simple. Blockchain could be used to create central ledgers of public information, such as land registries and libraries. In essence, the blockchain can replace the function of the public notary – freeing up a huge number of legal and administrative hours for all manner of public and commercial transactions.
Blockchain can enforce legal compliance, through the management and delivery of the terms of Smart Contracts. This is especially useful for artists and content producers: royalties or profits can be paid for every microtransaction and the terms can be managed without the need for any human intervention. They can also serve the manufacturing industries, allowing for the tracking of components and ingredients to ensure accountability and safety.
The future of blockchain
Confidence in blockchain is now starting to grow. A World Economic Forum report estimates that by 2025, around 10% of the world’s GDP will be held on the blockchain in some way. There is even talk of using blockchain to centralise and protect identity records, medical records and more. Perhaps blockchain could replace the Cloud in the future, and become our go-to for secure storage and information transmission. At Phillip Nunn, we certainly expect its use to become more prominent in the coming months and years.