Blockchain … HUH?!
By David Bridges, Edmonton’s First Accredited BlockChain Specialist
No discussion on disruptive technology in 2018 would be complete without a rundown of the basics of blockchain. Seemingly complicated and somewhat mystifying, blockchain technology is here to shake up and disrupt our world by actually making things much simpler and eliminating many of the intermediaries of business and information we’re used to.
With high impenetrable security and the ability to put control into the hands of individual users, blockchain has the ability to revolutionize the way we store medical records, conduct trades, and transfer funds. However there is much more with advanced transmission methods and one of its best features, smart contracts (but more on those in a minute).
So, what exactly is blockchain technology and how is it going to help us accomplish all this?
If you think of a chain of building blocks when you hear the phrase “blockchain,” you’re not that far off in concept. However, in this type of chain, the blocks are units of information linked together in a type of code called “hash.” A new block is created every time new information is added, such as a financial transaction or a medical record.
While this is the basic structure of the information, the real value in blockchain is that it’s decentralized and is not controlled or owned by an individual institution, company or bank. The blocks, instead, are stored on a network of personal computers which can be joined by anyone.
If this sounds risky, know that each personal computer is also used as a way to verify information. The hash gives us all the information needed to know what block of information is intended. This means if one block of information is tampered with, the hash needs to be changed on every subsequent block and needs to do so fast enough to fool the consensus, or 51% of the computers in the network.
Not only is this extremely difficult to do thanks to the number of computers in the network, another feature of blockchain technology, Proof of Work, makes this even harder. With Proof of Work in place, the creation of new blocks is delayed by several minutes, making it impossible for the hash to be changed in time on subsequent blocks before they reach the network to be verified.
Because of these security measures and the peer-to-peer network, blockchain makes it possible to trade safely between individual persons without another institution involved or banking information exchanged.
Still with me? Good, because this is where is gets transformational to business.
Blockchain applications are taken even further with the introduction of smart contracts. With uses as far ranging as property exchanges, fund transfers and stock sales, smart contracts have the ability to disrupt and improve transactions in a multitude of industries while eliminating intermediaries and fees for service.
The real beauty and genius of smart contracts is that, unlike paper contracts, they don’t merely define the rules of an agreement, they can enforce them.
It starts like this, when you create a smart contract, it is added to the public ledger (or blockchain). Both parties to the contract are anonymous, but the ledger is able to provide security with the safeguards it provides.
A transfer of funds, expiration date or other event written into the contract will trigger the contract to fulfill terms. For example, if you book a weekend stay at an Airbnb location, the person renting out their space can assign you a digital key which will be released when you pay a certain amount by a certain date. If you don’t meet the requirements, the key will not be released. Similarly, if you do pay your deposit on time and the key doesn’t appear, the contract will automatically issue a refund.
This is only the beginning of examples of how these contracts can be used. They will also prove invaluable in cutting down on time and cost wastes associated with government contracts and even our voting system.
That being said, smart contracts still have a few kinks to work out before they can be fully integrated into how we do business today. Because of the time it takes for a contract to confirm and verify information, this can significantly slow down business. While this can be acceptable in the case of voting or an Airbnb, retail locations that require a purchase to be paid and verified immediately, would be unable to keep a customer waiting around while smart contracts get up to speed.
However, as this technology evolves, new technology advancements are popping up everyday such as Lightning Network, which talks about scalable, instant Bitcoin/Blockchain transactions. As stated on their website, “Lightning is a decentralized network using smart contract functionality in the blockchain to enable instant payments across a network of participants.”
Many are comparing the current state of block- chain to the early days of the internet. IBM’s Pres- ident and CEO, Ginni Rometty, has said that “What the internet did for communications, blockchain will do for trusted transactions.” Those that adopt and explore innovative technologies could be the Google, Uber, or Facebook of tomorrow.