There is a revolutionary technology that will have a profound impact on the global economy, and it’s not self-driving cars, augmented reality, or 3D printing.
It’s called blockchain, and it’s poised to be the most disruptive force in computer engineering in generations. Blockchain is a technology that establishes a new level of trust, accountability, and transparency in any kind of electronic transaction.
The next era of the internet
Blockchain is an electronic ledger of transactions that is continuously maintained and verified in “blocks” of records. The ledger allows anybody to easily conduct transactions in a safe and secure way, without having to go through an intermediary. It possesses three key advantages:
- Power is decentralized: Say goodbye to the days of centralized power held by clearinghouses, banks, credit card companies, and corporate conglomerates. With blockchain, everyone can have equal access to the same data and the same power.
- Location is inconsequential: Whether you’re in the heart of Silicon Valley or the Horn of Africa, everyone with a connection as simple as a mobile phone holds access to the resources previously granted only through large institutions.
- The record is permanent: Using state-of-the-art cryptography, the records are permanent, secure, and verified by a network of users.
How does blockchain work?
A blockchain is a public ledger of all transactions ever executed within a network. The blocks of transactions are added in a linear, chronological order. Each computer connected to the network validates each transaction, making it an interdependent network not reliant on third-party oversight. A block is the “current” part of a blockchain that records some or all the recent transactions, and, once completed, goes into the blockchain, which serves as a permanent database. Every block is time-stamped and stacked chronologically, making it virtually impossible to hack.
Blockchain is a disruptive force
As blockchain’s most famous application, Bitcoin is already revolutionizing currency transactions. It is an autonomous currency, dependent only on its network of users. Unlike hard currency, which can easily be duplicated and can’t be traced, Bitcoin is built for the digital economy and comes with the full history of transactions. But Bitcoin is just the beginning. How else will disruptive ledger technologies impact business?
1. Add billions of people to the global economy
According to the World Bank, more than two billion people still lack access to basic transaction accounts. For these individuals not served by traditional financial institutions, full participation in the global economy has been out of reach until now. Blockchain has the power to bring these people into the fold, making access to financing easy and secure. In today’s economy, more than a dozen institutions and hundreds of touchpoints must all interact seamlessly for a single transaction to flow across borders. That is all about to change. As peer-to-peer platforms replace intermediaries like banks, credit card companies, and governments, billions of previously “unbankable” people will be able to join the new global economy.
2. Drive down the cost of business operations
Blockchain technologies stand poised to convert the most arduous operational processes (e.g., governance, compliance, administration) into seamless, automatic tasks. Today, machine-to-machine communication across organizations is slow, costly, and often requires extensive human capital. With each organization maintaining its own IT systems and solutions, building the necessary bridges between organizations is often just not worth the cost. Blockchain introduces a universal standard for storing data, making it easier than ever before to work across systems and organizations. A recent report projects that blockchain technologies will save the banking industry between $8 billion and $12 billion per year.
3. Make contractual agreements easier, faster, and cheaper
Smart contracts are computer protocols that can facilitate, verify, and enforce the negotiation or performance of a contract. Essentially, smart contracts document the terms of a transaction and execute those terms directly—without the need for lawyers, escrows, and countless middlemen who increase the time and cost of contracts.
Smart contracts can seamlessly capture obligations, drive reporting, and minimize operational errors. Governments and corporations, which are often backlogged by endless paperwork, data sources, and reporting mechanisms, will have access to instantaneous processing, verification, and payment.
The future of blockchain
Blockchain is undoubtedly in the early days of its development. It is comparable to the state of the internet twenty years ago or to that of the cloud about a decade ago. While it may be still in its infancy, blockchain is not going away anytime soon. Last fall, IBM announced it would invest $200 million and hire 1,000 people to fuel its blockchain research and development. More people will have access to the global economy, the cost of business operations will be driven down, and contractual agreements will become easier, faster, and cheaper.