- Blockchain - The magic word
During my regular catch-up sessions, a Fintech sales professional happened to narrate an interesting situation that occurred with a financial IT executive. Talking about the market and current industry trends one of them jumped the course and got into the unprecedented topic of the blockchain. With the amount of buzz surrounding this "I don't know but so sexy technology" topic, no one ought to be blamed for trying to understand something that picked his or her curiosity. What followed next was an awkward situation that can be perfectly described as what I call the BC stare down effect. BC being an acronym for blockchain but also a popular South Asian invective used at most times to wittingly summarise a disastrous and depressing situation. Well, that got me thinking. What is Blockchain, no really, what actually is all the buzz about?
I got down to research and here I hope to declutter and demystify blockchain. The more I researched the more I understood that blockchain technology is like a 5-year-old highly intelligent kid who is yet to fully achieve his potential with all his teachers pulling his talent into different directions. However, there are many real-life examples of blockchain projects today, billions of dollars pumped and many people talking about it. But compare this to talking about the internet in the early 80’s, some excellent thought leaders and experts but at the same time a few who use it simply as a buzzword. This is in no way a scholarly article but a simple attempt for basic mortals to comprehend.
What is it?
Well, there are many to disagree but blockchain is considered to be the biggest thing since the Internet. Think of our finest inventions - the wheel, sail, combustion engine, the telephone, Internet; what you can put next is the blockchain. The scope that it is set to open is huge. The technology is disruptive and can transform the way we live and our futures forever. Remember 2008? The financial crash and how we lost faith in the banking system? Well, coincidentally this is exactly when an Internet Aladdin by the name of Satoshi Nakamoto released a white paper that spoke of a peer to peer version of electronic cash that would enable online payments from one party to another without an intermediary in between - the bank. Thus, began the birth of the infamous bitcoin. Bitcoin is what you get from blockchain. To make it simple, if bitcoin is an e-mail; blockchain is the internet. Blockchain is that technology that enables cryptocurrencies like bitcoins to work. One can try to understand blockchain from two perspectives - as the basis for all cryptocurrencies and financial transaction or as a technology that tackles the issue of trust between two parties.
Blockchain is part of an evolution. It is not complete and there is a lot of room for it to mature, hence expect ten different definitions for blockchain. In principle blockchain eliminates a third party, it seeks to solve the issue of trust and transparency which are cornerstones to any business, person to person transaction, bureaucratic procedures or even the fundamental right to vote within a democracy. Any process where there is a value created be it quantitative (monetary in nature) or qualitative (government process, law) and which finally needs audit or governance - yes, you guessed it, blockchain.
If you got the concept and are still interested, keep reading. At the end of the day, this is a technology and I will try to elaborate on this without going deep down into the mechanics. It’s easier to understand blockchain as a digital infrastructure (unlike a brick and mortar institution) which works pretty much like a ledger. Now since it's not on paper we can without hesitation call this a digital ledger. Imagine this digital ledger to be public - no single owner, distributed - across many computers, synchronised - constantly updated, cryptography - secure. These are the four intrinsic principles of blockchain and when all of them come together you have a massive distributed database of digital assets. Unlike any regular database systems, this distributed database is so secure that even if the best hacker came with an inconceivable amount of supercomputing powers it would be impossible in their lifetime to breach its security.
So how does this work? – Distributed Ledger Technology
The truth is that no one gets to change the ledger. You only get to update it. And every update comes with a time stamp. Each update to the ledger creates a block and all the blocks together creates a chain. Viola! Running via the internet every block is a record that is in sync and every node keeps a record of the entire blockchain on the connected network. The analogy here can be related to our very own DNA structure. No matter who you are and where you are from we eventually have a genetic record that can trace our ancestry. The only thing here is that the blockchain is more efficient, clear and verifiable by complex computing and mathematics.
What does all this mean? Lesser settlement procedures, the absence of physical inspection/audits and a hell a lot of time and money saved. Welcome to the new world.
There are many to argue but I believe the spirit of blockchain lies in its principle of distributed database that is public and decentralised. However, blockchain has evolved to fit into our economics and the current state of governance. Blockchain comes mainly in 3 forms:
1. Public blockchain - This is the real form of blockchain - almost utopian. Power to the people, no banks and all that high-spirited bit. These are open-source and anyone can be a part of it. Everyone has a unique public identity which is anonymous and you can own as many identities as you wish. Each ID comes with a pass key (private- almost like your ATM PIN code, only very cryptic and much longer) which allows you to transact, participate, view and earn rewards in the form of cryptocurrencies.
2. Consortium blockchain - A more controlled form where there is a panel of bodies that operate and a majority must agree on the block for it to be valid.
3. Private blockchain - In simple terms, efficiencies of blockchain within a private company.
The basis of any cryptocurrency (bitcoin et. al) is that the complex math to be solved makes it sure that they are all in consensus and no two parties disagree on any record (like how many of us refuse to believe that we are earthlings). The system guarantees that there is only one update at any single given point in time and this mechanism is called “Proof of Work”. This POW mining is done by specialised computers called miners. Hold up - what these miners do is quite interesting. Only one mining machine solves a math problem at a time and it happens consistently. Well and every time these miners solve a problem they get rewarded in the form of a cryptocurrency. To maintain the issue of currency inflation the more miners you have working the more complex the problem to solve.
Shaping the future
Imagine financial transactions, land contracts, buying and selling, deliveries, machine to machine operations all done without error, audited in real time and in consensus with each other. Sounds fancy, correct?
By eliminating an intermediary and with digital governance blockchain has the power to transform our physical and online ecosystem. Mycelia is an online music interaction service founded by singer Imogen Heap that allows musicians to share and sell music to consumers without the need for a label. In the world of connected devices imagine me shipping flowers from Holland to Dubai and I have a smart contract governed by blockchain. It would state that if the smart sensors were to record a difference in temperature beyond or below the agreed limits the contract will immediately terminate itself. Period.
The earliest adopters of the technology could be the Fintech/Banking space (Reconciliation software’s might be very interested in revamping their mechanics), Public and the Supply Chain industry. The potentials are huge, some might sound too good to be true but we are yet to fully understand where it is going to take us. I know for a fact that it probably might not revolutionise our lives in the next 2 years. But in the next 10 years, we would have developed so much practical theory and expertise that it will be a game changer. As for Satoshi, not sure where he is at the moment, but my research through the deep dark alleys of the internet shows that he is currently somewhere in Indonesia looking out for engineers. Ping me if you want his email address ;)
A bit about me – I am a Dubai-based IT and Fintech specialist recruiter with a deep passion for emerging tech trends. If you are a job-seeker, a company looking to hire within IT/Fintech/Payments space or simply interested in grabbing a coffee to discuss where our tech industry is heading, please feel free to get in touch with me on firstname.lastname@example.org