Blockchains could be the most important technological innovation since the Internet itself. Facilitating transactions between organisations and people requires trust. Every day we pay invoices or buy goods and services with debit or credit cards, issued by a bank or credit card company that guarantees these payments. These middlemen are appointed, regulated and audited by governments, providing us with a peace of mind that many of us take for granted.
But what if you could arrange these transactions using technology, providing you with the same guarantees as a regulated bank, but without the middleman? This is what blockchain does. More than that, it provides a mechanism to do business without knowing your counter party or their reputation. In a digital space, the only thing that matters is the number.
The original blockchain is the decentralised structure behind the digital currency Bitcoin. The structure consists of linked batches of transactions known as blocks, hence the term blockchain. An identical copy is stored on each of the approximately 200,000 computers that make up the Bitcoin network. Each change to the structure is cryptographically signed to prove that the person transferring virtual coins is the actual owner of those coins. Once a transaction is recorded in the structure, every link in the network will know about it.
The idea is to both keep track of how each unit of the virtual currency is spent and prevent unauthorised changes to the structure.
The concept of a decentralised, cryptographically secure database for uses beyond currency has many advocates. Its biggest supporters believe blockchains can not only replace central banks but signal a new dawn for any other transaction or contract that we want to register in an immutable and secure manner. Think about registering land property, music rights or mortgages.
It’s unsurprising that this chain of tamper-proof databases has captured the attention of everyone, from Silicon Valley to Wall Street. Blockchains are finding acceptance in some of the world's largest companies. Large financial services companies like JP Morgan are experimenting with blockchains and blockchain-like technologies to improve the efficiency of trading stocks and other assets.
The Future of Blockchain
Despite the blockchain hype — and the many business experiments that springing up on the back of it — there’s still no proven use for the technology beyond currency speculation. And while auditors might like the idea of immutable records, as a society we don't always want records to be permanent.
Blockchain proponents admit that it could take a while for the technology to catch on. After all, the founding principles of the Internet were created in the 1960s, but it took decades for the Internet to become mass market.
That said, the idea could eventually show up in lots of places. For example, your digital identity could be tied to a token on a blockchain. You could then use that token to log in to apps, open bank accounts, apply for jobs, or prove that your emails or social-media messages are really from you.
Perhaps the most radical idea is using blockchains to handle voting. The team behind the open source project Sovereign built a platform that organisations, companies, and even governments can already use to gather votes on a blockchain.
Proponents also believe blockchains can help automate many tasks now handled by notaries. For example, your will might be stored in a blockchain. Or perhaps your will could be a smart contract that will automatically distribute your money to your heirs.
It's also entirely possible that blockchains will evolve into something completely different. Many of the financial industry's experiments involve "private" blockchains that run on servers within a single company and selected partners. By contrast, anyone can run Bitcoin or Ethereum software on their computer and view all of the transactions recorded on the networks’ respective blockchains. But big companies prefer to keep their data in the hands of a few employees, partners, and perhaps regulators.
Bitcoin proved that it’s possible to build an online service that operates outside the control of any one company or organisation. The task for blockchain supporters now is proving that this is actually a good thing.