In late 2008, an anonymous paper was published, titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” The paper described a method for peer-to-peer transfers of electronic cash without the need to go via an intermediary or through a financial institution such as a bank. “Bitcoin” was the name given in this particular commodity, but the term “cryptocurrency” is used to describe the networks and mediums of exchange that use cryptography to secure these types of digital transactions.
The popularity of Bitcoin has increased since then, and in December 2017 the value of 1 Bitcoin reached almost USD20k. There are now over 1600 different cryptocurrencies touting various use cases. Blockchain, the underlying technology of cryptocurrencies, is now widely known and trusted and has an increasing range of practical applications.
A blockchain is a distributed database of records, or a public ledger of transactions or digital events that have been executed within the system. The premise of the underlying technology is that one centralised authority is not controlling or overseeing the transactions that take place and the record-keeping of those transactions — rather, a network of participants verifies the transaction by consensus, and once entered into the ledger, the transaction is irreversible.
While the initial premise of Bitcoin was for digital cash transactions, the technology can be applied to any form of digital asset transaction exchanged online. It gained popularity in its infancy for black-market trading because of its value and the anonymity and un-traceability of the parties entering into the transactions.
As the name suggests, the system orders transactions by placing them in groups called ‘blocks’ and then uses a process to place these blocks into a unique ‘chain’ as they are independently verified by the network’s members. The blocks are linked to each other in a proper linear, chronological order, with each block containing a unique code (hash) which links it to the previous one. Users can choose to remain anonymous or provide proof of their identity to others, and each user on a blockchain has a unique 30+ character alphanumeric address that identifies their input. The final chain of blocks represents the final, verified transaction record, which can be associated with anything of value.
Here is the basic principle of blockchain:
Since its inception, there have been varying levels of controversy, criticism, skepticism, and optimism surrounding Bitcoin and blockchain; however, we are now seeing increasing adoption and investment in the blockchain technology and its enterprise application. The World Economic Forum forecasts that by the year 2027, 10% of global GDP will be stored in blockchain ledgers.
Some of the industries in the process of validating use cases and business models for blockchain include manufacturing and logistics, healthcare, finance, and government. End-to-end track and trace is just one example of blockchain in logistics and supply chain. The ability to have a cost-efficient, traceable, transparent and secure system to transact data records has the potential to provide huge benefits, with less risk.
In June this year, Facebook announced its intention to release its own digital currency. While there are regulatory pressures facing the tech behemoth, the news has sparked interest in cryptocurrency amongst the masses once again.
I believe that while there will be ongoing regulatory influence and resistance from those institutions that are set to lose if blockchain technology becomes mainstream, it is time for businesses to rethink transaction processing in the digital era.
For more on this topic, see What’s Essential To Scale Blockchain.