In an article called The Trust Machine – the Economist says: The technology behind bitcoin could transform how the economy works. Already a billion dollars have been invested in Bitcoin and Blockchain infrastructure. A group of startups have sprung up.
And we are told – everything will be changed/disrupted (yet again!)
So, how real is it? And what will be impacted?
This article is about the disruptive potential of Blockchain – the technology underpinning Bitcoin. Bitcoin is a digital asset management and a payment system invented by Satoshi Nakamoto in 2008. The article is not about Bitcoin – which can be seen as one of the applications of Blockchain. Bitcoin is a peer-to-peer transaction system where users can transact directly without an intermediary. Transactions are verified by network nodes and recorded in a public distributed ledger called the block chain
Thus, a Blockchain is a permissionless distributed database that maintains a continuously growing list of tamperproof transactional data records. Bitcoin is the best known application of Blockchain. But the Blockchain technology has many uses independent of Bitcoin because Blockchain technology allows for the exchange of value within a network without intermediaries.
Here is a summary to the forthcoming disruptive potential of Blockchain. Firstly, we list the disruptive characteristics of Blockchain and then we list the possible areas of impact.
In the Blockchain transaction management system, all transactions conducted by users (called “nodes”) within a network are recorded in an encrypted public ledger that is held jointly by all nodes. This means, there is potentially no longer a need for a trusted third party.
A smart contracts is an agreement between parties that is posted to the Blockchain. These agreements can be between peer-to-peer (P2P), person-to-organization (P2O), and person-to-machine (P2M). The agreement could specify virtually anything and the transaction would then be recorded and validated on the Blockchain (which is distributed). Smart contracts impact many industries such as financial instruments, legal instruments, healthcare and other services.
Blockchain technology could also act as an enabler for IoT (Internet of Things). Whenever an object is purchased, a transaction occurs. As with any other transaction, this could be written onto a Blockchain. When combined with Smart contracts, an Asset could be managed by different entities including sharing of data, machine to machine communication etc.
Based on the above, let us look at industries that could be disrupted. To recap:
A blockchain is essentially just a record of digital events that is stored in a distributed 'ledger' accessed by all parties. Both parties can count on the integrity of the transaction even when they don't know each other or trust each other (trustless exchange). Currently, these transactions are mostly cash (ex bitcoin) but they can be anything. This means many concepts like email messages, credit cards etc can be validated. This could impact many industries.
The Internet did not have it's own currency. Bitcoin could be that currency. On one hand, bitcoin (based on blockchain) is unbundled i.e. not tied to any entity – but on the other hand – the currency could be integrated and accepted by many providers. Hence, blockchain and bitcoin are expected to disrupt money and finance.
Just like the Internet did not have it's inbuilt currency, it did not have an inbuilt Identity and Reputation system. Privately owned social networks and sites aim to create their own versions of (closed) identities in return for Data. The blockchain ecosystem could remove the need for such entities. Identity and Reputation become more secure because it is decentralized and not tied to any one entity. Such Identity is also portable.
Digital assets could be linked to the Blockchain and ownership could be asserted and they could be monetized.
We see decentralized peer-to-peer marketplaces today (Uber, eBay, Amazon). However, these are still not truly decentralized. They are privately owned companies creating disruption through decentralization. They are not true Peer to Peer systems. However, with Blockchain, Trust, rules, identity, reputation and payment choices are embedded at the peer level. This creates a true decentralized marketplace with no intermediary.
Bitcoin and Blockchain enable financial instruments which function as currency that is not tied to a state. This means entities could issue their own currency that is not tied to a state.
Assets could easily have a secondary use. For example, a vehicle could be easily 'rented' by someone else through a Smart Contact. This could take place at larger/corporate levels through a decentralized marketplace
Blockchain could also be used to prevent fraud through the use of Smart contracts. An Internet enabled medical device registered on a Blockchain will create an event every time it is used. These events could be co-related with a Blockchain enabled electronic medical record (EMR) which could be further linked to an insurance Blockchain. Such a system thus provides transparency.
So, why is everyone excited about Blockchain?
Some experts see these ideas bringing us back to 1994, offering a “second chance” to correct weaknesses which they think have allowed a few large companies to dominate the Web. Blockchain addresses the problem of the single source of truth i.e. the source that be reliably trusted universally(user, identity, ownership etc). The Blockchain converts the entire network as a source of truth by creating a Peer to Peer, replicated, tamperproof system.
Are we trying to create a new Web? I would see Blockchain as an Overlay network which maintains contracts, Rights, Identity etc at a genuine Peer level.