What is blockchain technology and how is it impacting our business? This is still the question people ask me often, including the representatives of APEC when I presented it, in Peru in May 2016, to the economic decision makers of 21 economies. 1
Once we move past the nuts and bolts of the technology, I think a more interesting question arises which is:
“Will blockchain technology impact our economies and lives in the same way the internet (and mobile communication) did?”
This is the question that those who have thought deeply about the technology and its potential applications are asking. So, earlier this year, I used the generous invitation of the Shenzhen, China based QIIR (Qianhai Institute for Innovative Research; www.qiir.org) to work with their global research staff to understand blockchain technology and its impact on (initially) the financial industry. Our initial research will be published in a QIIR research paper later this year.
The deeper I dig into the technology, the more I feel like it’s the early 90s, when we seriously questioned if money could be made on this “Internet thing.” Does it work as an advertisement platform? Is commercialization even possible? Who is going to use it? A lot of these early questions appear silly in hindsight when looking at Google, Facebook, Amazon, Skype and the endless list of internet successes.
The type of profound technological change that the internet and now blockchain represents happens quickly. I see myself, circa 1994, holding a small HP handheld computer connected to a Nokia phone to do email on a moving train somewhere in southern Germany to demonstrate “mobile communication and internet access” to journalist and business leaders. The idea that smartphones would be changing our world and businesses never even crossed their minds.
We have not even started to imagine the possibilities blockchain technology will enable us in the next decades.
What is Blockchain technology?
Blockchain is a “write only” digital platform that records and verifies transactions. A blockchain is much like a database made up of rows, columns, and tables. And, really, without its sophisticated encryption, a blockchain is just another database. However, that is where the comparison ends.
Blockchain technology uses cryptography and digital signatures to prove identity, authenticity and enforce read/write access rights. All transactions within a block are visible so there is full transparency for every transaction. And, once an entry goes into a blockchain ledger, it cannot be (easily) altered or erased.
There is no “central power” overseeing the ledger of transactions. Instead, blockchain technology enables a decentralized and distributed ledger where transactions are shared among a network of computers—in almost real-time—rather than being stored on a central server with a central authority (like a bank) overseeing transactions. The fundamental security assumption is that a minimum 51% of the many thousand or more participants are “the good guys” and therefore any malicious attempt will be spotted, identified and rejected with consequences for the “bad player” and also the group in which he (or she) participates. The individual and personal motivation of (almost) every participant to hold up the high level of vigilance and security allows the system to function and provide security and trust in a trustless environment.
Currently, the most visible use of blockchain technology is for virtual currency like BitCoin, Ether, Dogecoin, and Litecoin. However, the technology makes a worldwide distributed ledger possible for things like smart contracts, IP, land titles, art—if an item is “transactable,” it can be tracked. For a very quick overview, check out this 2-minute video produced by the Institute for the Future. It’s called Understand the Blockchain in Two Minutes: