27 Mar 2018
How will this technology change our daily lives?
From online trading to intellectual property, blockchain is already changing many aspects of our lives and businesses. But we have only scratched the surface of how this technology can be applied.
So how does it work? How is it being used? And what exactly will it change?
What is blockchain?
Blockchain is an electronic ledger that records transactions, allowing them to be performed faster and more securely, and, perhaps most importantly, without the need for an administrator of any kind.
Blockchain can be used to record many types of transactions; from money or data transfers to the sale of goods or services.
How does blockchain work?
Blockchain uses peer-to-peer technology to send the encrypted details of a transaction to multiple computers at once. These computers, known as nodes, accept or reject that transaction based on code.
If the transaction is accepted, it is recorded on the shared ledger and timestamped simultaneously on every single node, of which there could potentially be thousands.
How blockchain is already being used
Blockchain’s most public application so far has been in the world of cryptocurrency - the purpose for which it was invented in the first place.
While the concept of digital currency has been around for some time, in its earlier forms there was always the possibility that - without a trusted central administrator to oversee the flow of currency - one person could transfer funds to another but also leave it on their own computer.
Blockchain technology overcomes this. The peer–to-peer structure, combined with encryption, allows anyone to transact securely.
Blockchain is also changing the way we trade other investments, most notably shares in Australian public companies.
The problem with traditional electronic share trading has been that, even though the buying and selling happens at lightning speed, the subsequent processes to actually verify ownership (clearance) and exchange shares and money (settlement) take some time. This is because the Australian Securities Exchange (ASX) must verify ownership and reconcile payments against a central database.
The ASX is now replacing this with a blockchain system that will allow it to verify ownership and transfer funds more or less immediately, saving both time and money. Because it is peer-to-peer based, this process is also more secure.
So, with so much potential, where else could blockchain have an impact?
Keeping official records
When buying and selling a home, blockchain could be used to immediately verify ownership and speed up the passing of property from one person to another. It could also provide instant and irrefutable recognition of the title.
Sweden’s central land registry is currently experimenting with this idea, and has built the prototype of an app that will allow buyers, sellers, banks and real estate agents to transact. It will use blockchain to record information on every property sold, as well as each step in the sales transaction and transfer, making communications between parties more transparent.
Changing cross-border transactions
Many people in the developing world rely on relatives overseas to send them money. If they don’t own bank accounts, these money transfers can be subject to high fees and charges. In fact, the World Bank puts the average fee at 7.45%.
Blockchain could overcome this, allowing people to send money instantly and securely to a person across borders without the intervention of a third party or bank account.
All it needs is for one person to have the money and a public key and the other to have an electronic wallet and private key (a secret number). These work together to create an electronic signature that verifies the authenticity of the transaction and transmits the money from one person to another.
It is not only unofficial cryptocurrencies that could benefit from blockchain technology. Eventually, Reserve Banks around the world could begin incorporating the technology into their currencies, making payments faster and more secure. Both the Bank of England and the Bank of Israel are experimenting with this idea.
US-based MedRec is using blockchain to create a decentralised record management system for electronic medical records. This makes sure that records can be shared quickly and easily and that they are authentic. By providing a ledger of who has accessed each record and who has changed what, it also improves confidentiality and integrity.
Making philanthropy and aid work better
One of the main problems in aid work has always been making sure that money goes where it was intended. In 2012, the Secretary General of the UN announced that as much as 30% of aid money was lost to corruption globally. Blockchain could help ensure only approved people can access funds, while the incorruptible ledger could be used to ensure they are spent where they should be.
These are just some examples where blockchain has the potential to revolutionise the way we live. Put simply, wherever security, timeliness and integrity are needed, blockchain could - and probably will - disrupt the current way of doing things.
The potential is an even more connected world where innovation happens more rapidly, property rights become easier to enforce and the online environment is more secure.