William Mougayar describes “the blockchain” as a complex meta-technology that will enable numerous possibilities by layering on top of existing technology, similar to how the World Wide Web was added as a layer on top of the internet. However, people should not narrowly perceive blockchains as solely a technology for cryptocurrencies. Instead, blockchains are a multi-faceted and revolutionary force, functioning as part database, part network facilitation, and part software development platform.
It is crucial for professionals outside the software development field to understand the capabilities of blockchains. The blockchain’s core capabilities can be defined in three equally important but distinct ways: technical, business, and legal. Technically, blockchains are a back-end database that maintains an open, distributed ledger that can only be added to sequentially and never erased. In terms of business, blockchains are an exchange network where transactions, assets, and other forms of value can be exchanged peer-to-peer (P2P) without intermediaries or centralization. Legally, the blockchain is a mechanism for establishing validation, proofs, and trust without intermediaries.
Beyond disrupting intermediaries and transforming how companies conduct business, blockchains’ ultimate goal is to empower people in a more decentralized world. A peer-to-peer, trust-based crypto economy that does not rely on centralized authorities and their associated risks is the desired outcome. The establishment of a crypto economy will challenge people to rethink value and how it is exchanged. Blockchains will create new companies and user behaviors, compel companies to adapt, threaten and transform entire industries, and become an established part of software development.
Blockchains are a far-reaching and game-changing technology that has the potential to achieve accessibility, security, and decentralization to a degree that was first envisioned with the Web. It is crucial to have a broader understanding of blockchains beyond their association with cryptocurrencies, as their implications are far-reaching and revolutionary.
Blockchain Characteristics
Blockchain technology is a result of the intersection of three fields: cryptography, game theory, and software engineering. Each of these fields has contributed to ensuring that blockchains are secure and resistant to attack. Software engineers have combined game theory and cryptography tools, such as hashing, keys, consensus algorithms, and digital signatures, to establish transactions as trusted and valid on the blockchain.
However, the challenge facing blockchains is not just about convincing people of their superior security over other technologies. They also have the potential to disrupt existing intermediaries and centralized control. Understanding the ten key characteristics of blockchains is crucial in appreciating their future impact:
- Digital cryptocurrency: Digital currencies are currently the most visible application of blockchain technology. They are efficient within blockchain networks, but more advanced uses will emerge as speculative volatility dies down and crossover to traditional currencies becomes simpler.
2. Decentralized computing infrastructure: Blockchains are powered by a network of computer servers that link computers under a common “consensus process” to release, record, and verify interactions via cryptography.
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Transaction platform: Blockchains can validate transactions related to any digitized asset. When the network has reached consensus, a transaction is recorded on a “block” or storage space and time-stamped for later confirmation.
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Decentralized database: Blockchains can store semi-public information, with a unique signature identifying the owner of the data in the block. Anyone can verify who placed the information in the block and view a public header of the information stored there.
5. Distributed accounting ledger: The ledger tracks every transaction processed, time-stamps it, and prevents double counting of transactions or assets.
6. Development platform: Blockchains offer a new way for developers to build decentralized and secure applications using cryptography.
7. Open source software: Established blockchains like Bitcoin are open source, allowing for greater innovation and an associated ecosystem to be built around the blockchain.
8. Financial services marketplace: Blockchains will lead to the development of new financial products and a new trading marketplace.
9. Peer-to-peer network (P2P): The P2P nature of blockchains is fundamental to their operation. Verification happens at the P2P level, without the need for intermediaries like banks.
10. Trust services layer: Trust is both a function of and a service on the blockchain. Trust is vital to any transaction that requires proof and verification, including data, services, processes, and physical objects.
Overall, understanding these ten key characteristics of blockchains is essential for appreciating their potential impact on various industries and areas of centralized control.
The Proofs Pyramid Backup by Blockchain
Blockchain technology represents a revolutionary shift in the way we approach trust. Rather than relying on individuals to verify transactions, the blockchain provides a means of computing and validating information that is both secure and transparent.
As with the internet itself, people are rapidly embracing this new technology and integrating it seamlessly into their lives. The next phase is to ensure that verification happens just as seamlessly for end-users, making blockchain a fixed feature of both hardware and software.
One way to understand the potential of blockchain is through the “Proofs Pyramid”. This model outlines a spectrum of services that can be offered using the blockchain’s ability to prove the timing and order of events. The top of the pyramid consists of services that prove something is part of another service, such as wedding registries or land transfers. Moving down the pyramid, greater technology is required for services that prove identity or ownership, and finally, for services that are part of a consensus protocol.
Beyond these applications, the blockchain’s ability to time-stamp, enable multisignature transactions, and establish consensus algorithms makes it an essential tool for smart property and smart contracts. Smart property, for example, can recognize who it belongs to and link to the blockchain so that it cannot be owned, spent, or sent by more than one person. Smart contracts are computer programs that enforce contractual agreements and can be used in a wide range of applications where value is attached.
Overall, while the concept of blockchain may seem confusing at first, its potential applications are vast and varied. As we continue to develop new tools and technologies, it is likely that the blockchain will become an increasingly important part of our lives without us even realizing it.
Blockchain Challenges
Blockchains have been embraced by developers, but there is currently limited meaning for end-users without better middleware and services. Similarities can be drawn between the uncertainties that made people hesitant about the Internet and current resistance to blockchains. The success of the Internet was due to identifying barriers to commercialization and actively lowering them. Blockchain ubiquity and success face four key challenges that must be addressed: technical challenges, market and business challenges, behavioral and educational challenges, and legal and regulatory challenges. Technical challenges include underdeveloped ecosystem infrastructure, scarcity of developers, and a lack of standards. Market and business challenges include moving assets to the blockchain, onboarding new users, and the cost of testing and experimenting. Behavioral and educational challenges include a lack of understanding of the potential value, limited executive vision or fear of disruption, and low usability factor for novice users. Legal and regulatory challenges include unclear regulations, compliance requirements, and taxation and reporting standards that need to mesh with traditional accounting systems.
Sectors to be Changed by Blockchain
Blockchains are becoming increasingly important in financial services. While they may not be suitable for all purposes, they are particularly relevant to the core business models of financial services providers. Traditional banks may need to be careful in their approach to blockchains, which are designed to decentralize and disrupt existing banking processes. One possible future scenario is for banks to exist only as “bank ends,” with each person having their own virtual bank and cryptocurrency wallet. The next three sectors most likely to be changed by blockchains are governments and governance, healthcare, and energy.
In governments and governance, blockchain can be used for a wide variety of applications, from marriage registration and passport issuance to voting and taxes. Health care faces regulatory barriers, but blockchain solutions could be used for transportable medical records, multisignature access to records, anonymous patient data for research, and more. In the energy sector, blockchain can help with more efficient management of power distribution, low-cost microtransactions, and secondary markets. Blockchains can also disrupt intermediaries in various sectors, such as notaries, escrow services, and other trust-based intermediaries.
How to Implement Blockchain Technology
Blockchain technology has disrupted industries by providing a decentralized, secure, and transparent way to store and exchange data. However, implementing blockchain in an organization requires careful planning and execution. One approach is to designate a “blockchain expert” who can facilitate the integration of blockchain in the organization by educating people, removing obstacles, sharing best practices, and coordinating implementations across departments. Another approach is to form a blockchain task force comprising stakeholders from different business units, who can share their knowledge and interests and learn from each other.
A systematic way to approach blockchain implementation is to break it down into five major areas of functionality: core and protocol, software development tools, on-chain services, off-chain services, and end-user view. This helps in building a blockchain strategy and implementing it effectively. Another way to think about blockchain implementation is to use a decision-making framework that involves asking questions related to its impact on solving problems, creating opportunities, and applying capabilities.
To evaluate the potential benefits of blockchain, organizations can analyze areas such as cost savings, productivity, efficiency, time delays, quality, outcomes, and risk. Additionally, they can explore new service opportunities that may arise as a result of blockchain technology, such as new intermediaries, networks, marketplaces, clearinghouses, or authorities. Finally, organizations can consider the generic features of blockchain, such as decentralization, distributed ledgers, and digital signatures, and how they can be used to unbundling/rebundling services and create new business models.
Implementing blockchain requires experimentation and learning from trial and error. For instance, running smart contracts on the blockchain can help companies discover new business connections and opportunities. By carefully considering the different approaches and frameworks, organizations can successfully implement blockchain technology and reap its benefits.
In conclusion, blockchains are a multi-faceted and revolutionary force that extends beyond cryptocurrencies. Their ultimate goal is to empower people in a decentralized world, creating a trust-based crypto economy that challenges traditional intermediaries and transforms industries. Blockchains offer new capabilities in technical, business, and legal realms, and their impact on industries is expected to be game-changing. The ten key characteristics of blockchains, including their decentralized computing infrastructure, transaction platform, and distributed accounting ledger, are crucial in understanding their future impact. The Proofs Pyramid model highlights the spectrum of services that can be offered using blockchain’s ability to prove the timing and order of events, from wedding registries to smart contracts. Overall, blockchains have the potential to achieve accessibility, security, and decentralization to a degree that was first envisioned with the Web, and it is important to have a broader understanding of their implications beyond their association with cryptocurrencies.
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