What you must know about the Blockchain
Of all recent innovations that have or will profoundly change the world as we know it, one will be more disruptive than all others: the Blockchain. With the potential to redefine the economic fabric of contemporary society, the Blockchain is an innovation that no business executive can afford to ignore. This article will tell you why.
Isn't this yet another hype?
In 1490 Luca Pacioli first invented - or maybe just described - double-entry bookkeeping. A relatively simple, but powerful, mathematical idea. Even today, 500 years later, the whole economic world order rests on the simple idea of double-entry bookkeeping. From small shops to large corporations, and entire nations, all the transactions of the world are ultimately recorded as Luca Pacioli described. His invention truly redefined history, and kicked off the development of modern economics. The world economic order would be inconceivable today without the application of his foundational ideas.
Likewise, in the future, the world economic order will seem inconceivable without another innovative and disruptive idea, which was first described in 2008. That idea is the Blockchain.
The impact of the Blockchain cannot be understated, and it will be similar in scope to Luca Pacioli's double-entry bookkeeping.
What is a Blockchain?
A Blockchain is an innovation that comprises many different aspects, the main ones being: mathematics, cryptography, computer science, networking and social engineering. It sounds complicated. It is complicated. It is difficult to describe in full. Any description would be partial and incomplete, like the proverbial story of the elephant and the blind men.
A Blockchain can be imagined as one, single digital ledger that is shared by the entire world. A Blockchain will record, or list, all transactions that happen between two participating parties.
The internet as we know it today is based on a technical protocol, the internet protocol, which excels at transferring information. We use it on a daily basis, when sending emails amongst us, or when surfing the web. The internet protocol ensures that information is transferred from one computing device to another.
A Blockchain can also be considered as something similar to the internet protocol. However, while the internet protocol is designed to transfer information between networked peers, the Blockchain is designed to transfer value.
This is what makes the Blockchain so powerful: it defines how the most fundamental economic operation of all, a transaction, can happen in the digital world. These transactions are both secure and anonymous. They happen in a peer-to-peer fashion, with no intermediaries. They execute instantaneously, without friction, while creating an immutable record of the event.
In brief, a Blockchain can be used to record anything of value to humankind.
It is a new kind of medium, the medium to store and transfer value (rather than information).
Isn't this related to the Bitcoin, used by criminals and drug dealers?
The Bitcoin cryptocurrency is truly the first ever use of a Blockchain. One must be aware, however, that the Bitcoin is just one "application" that is built on top of the Blockchain protocol. Like email and the world-wide-web were built on top of the internet protocol, there can be many more applications built on top of a Blockchain protocol.
While a few people used the Bitcoin with malevolent intent, we must not think in terms of guilt by association. Instead it is necessary to clearly distinguish between the Bitcon (one application) and the Blockchain (the underlying protocol).
The Blockchain must not be considered as something bad, because of instances of misuse of the Bitcoin. It is important to think about the Blockchain in terms of what good it can bring to the economy.
Why is the Blockchain disruptive?
There are two primary reason (among many more) why the Blockchain is so disruptive:
- First, all transactions happen in a peer-to-peer fashion. This means that trusted third parties become disintermediated. As an example, people can transfer value directly between themselves without the need of the services of a financial institution. Any business where there is a third party, or even an authority, intervening between two transacting parties can potentially witness large scale disintermediation. The degree of disruption is substantial, and can involve business models, business processes, supply chains, customer relationships and more, in the global economy.
- Second, the records stored in a Blockchain become permanent and immutable. A Blockchain is in principle, a public record keeping system which can be inspected by anybody interested. A Blockchain keeps tracks of timestamped events, and this provides an unprecedented degree of transparency and auditability. A Blockchain becomes effectively a single source of truth. This has vast implications in term of auditing, transparency, regulatory compliance, tax collection, and so on.
While this article has only scratched the surface of this topic about the Blockchain, hopefully it will have conveyed the message that this innovation is really important for any business - even for humankind - and that it will never be too early to start thinking about how the Blockchain could affect your own business.
TameFlow Consulting Ltd.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.