In this post I will describe Blockchain using the analogy of a shared “spreadsheet” in the cloud. My aim is to make this concept accessible to people who have not been bitten by the bitcoin bug (yet) in a way that provides intuition to this exciting concept.
Blockchain in 2016
2016 has been the year of Blockchain. Traditional Finance; Banks, Insurance Companies, Central Banks, Management Consultancies are all getting in on the action. They are setting up divisions and Blockchain Labs to explore use cases. Not only traditional Finance but other industries such as Healthcare are testing the waters, spending a little (but not a lot) to wet their toes. Token gestures so far from the traditional economy but no visible results yet.
More interesting in 2016 is the exciting new wave of “Finance 2.0” startup companies that are investing millions of dollars and intellectual capital exploring innovative use cases and building new businesses from the ground up. In subsequent posts I will introduce you to a handful of these visionary companies, some of whom will be household names in years to come.
There are passionate proponents for Blockchain tech but there are many naysayers from the mainstream either sitting on the fence or worse, burying their heads in the sand.
http://www.coindesk.com/physicians-say-blockchain-healthcare-ideas-need-exam/
So what is a Blockchain?
It can be thought of as a shared “spreadsheet” in the cloud . This “spreadsheet” can be updated with new transactions and the history can be viewed at any time.
A basic version of this shared “spreadsheet” in the cloud idea is that of an online shared database such as Wikipedia.
Wikipedia works well because there is no great incentive to forge records on it so its accurate enough for its purpose, but just imagine if a bank was keeping bank account records on a platform such as Wikipedia. Anyone could just log in and edit their record or other peoples records. Not only that but you could see how much other people had in their bank accounts. This shared “spreadsheet” clearly would not work well for keeping track of bank balances!
Blockchain is a dramatic evolution of this shared “spreadsheet” in the cloud concept.
Blockchain provides a shared record that can be updated by anyone in such a way that there is only one correct version of it that everyone agrees upon. It also deals with privacy issues so that while the record is visible certain information is kept private to avoid intrusion. (No one should be able to see your bank balance!)
How does Blockchain work?
A global network of computers is constantly verifying the “spreadsheet” and updating it with new transactions as they are submitted to the network. When new entries are submitted, the network will add them to the shared “spreadsheet” and they will form part of an unbreakable chain. Forever more the entry will be in the Blockchain.
Blockchains innovation is that it provides a way for everyone to agree on the correct and most up to date version of this shared “spreadsheet” in the cloud.
Why have finance companies suddenly become interested in Blockchain?
In Finance one of the biggest assets that you need to protect is your data and your customers data. In business there are issues with trusting third parties as well a need for maintaining internal records.
Companies store data in physical forms such as paper records , and digitally in spreadsheets and other databases. Some items are so important they are even kept in fireproof safes.
These methods of storing and safekeeping data are products of the pre-computer business world and make it cumbersome to share and access information securely and efficiently. In the digital age banks and records departments need to keep strict controls on access to these repositories to ensure no one has tampered with them and the data has not been corrupted or destroyed. This is becoming an increasingly onerous task and the layers of strict risk management generate substantial overheads and unnecessary bottlenecks. Existing established protocols may continue to be used for many years for some purposes but evolution is beginning.
Enter Blockchain
In 2009 a new protocol to share information over the internet was introduced called Blockchain It suddenly became possible to create a shared “spreadsheet” in the cloud that anyone using the network could update and inspect and importantly no one could forge.
Blockchain infrastructure has been evolving since 2009 and paves the way to exciting new possibilities, consider:
- The Sharing Economy
- Transparent Voting Records
- More efficient Stock Markets
- Reshaping Insurance
- Transparent public records and an end to corruption
- Reduced Costs for Day to Day Banking
- Global Identity
- Digital Cash, Ecommerce and Banking for everyone
The Bitcoin network enables you to store digital cash in a wallet in your phone. Your balance is updated on the network when you make a transaction. When you spend bitcoins your wallet is debited with units of bitcoin and another wallet is credited. The record of this transaction is stored on a Blockchain and its safe and secure to use with strangers over the internet.
Its now possible for anyone to have a digital wallet on their smartphone.
The best is yet to come
Blockchain is custom built for the internet and opens the world to new products and services that will live and trade via the internet. The Internet of things and Blockchain will evolve to produce new services, new industries and new household names in 2017 and beyond.
This utopian sounding future may seem to many to be far off but in the short term Blockchain will be part of our lives and is likely we wont even notice the changes on the surface.
For example we may continue to use credit cards to pay for things but under the hood a blockchain technology may be operating when you swipe the credit card to update your account balance (without you knowing or caring).
On the surface what you would notice would be the reduced banking fees and secure instant transactions.
http://www.coindesk.com/visa-blockchain-payments-service/
Alternatives to traditional finance
The level of investment by Traditional Finance in Blockchain tech is still meagre and will probably remain low.
The real story is not how traditional finance will react but the exciting alternatives to traditional finance that are emerging. There are a host of financial pioneers building new internet enabled ecosystems on Blockchain. As traditional Financiers grapple to appreciate the new Blockchain technologies, these “Finance 2.0” companies are building a future of possibilities for inclusive trade and mutual financing, cheaper healthcare. Its difficult not to be excited about this.
History has shown with the widespread adoption of the internet and email, many businesses were affected. Businesses such as Post Offices and Travel Agents have survived but their offering has had to evolve and they have found new niches.
I have no doubt Blockchain will provide new faster, better and cheaper ways of doing things. The third wave is coming!
The third wave is going to be fun
Over the coming weeks I will provide in depth commentary on various aspects and uses of Blockchain. I will cover the following topics:
Digital Currencies
- Digital Currencies are the first application of Blockchain tech and demonstrate important features of Blockchains.
I will discuss Digital Currencies in detail and I will introduce a useful Classification System for Digital Currencies
Applications and Use Cases for Blockchains
This is where it gets really interesting.
Over several posts I will explore different use cases for Blockchains. I will describe interesting companies that have caught my eye and discuss how they may shake up some traditional businesses.
- Banking
- Trade / Ecommerce
- Insurance and Investments
- Social Media/Digital Media/Publishing
- Social/Public good
- Global Identity
Other Posts in this series
Blockchain - Beyond Bitcoin (Part 2)
Blockchain – Beyond Bitcoin (Part 3) Banking
Blockchain – Beyond Bitcoin (Part 4) Trade / Ecommerce