It’s safe to say financial institutions have financed the disruption of a number of industries over the last 30 odd years. And why is that? It’s because they have an idea of what a revolutionary technology like blockchain can do to static incumbents. So, in order to stay ahead of change, banks have been setting up R&D labs, establishing partnerships with blockchain developers, and building test centers in an attempt to fully understand the revolutionary potential of blockchain technology. Even though financial institutions were the ones to make the first move, academia, consulting firms, and governments have also studied the technology. Of course, all of this work is in addition to what developers are doing, either by discovering new ways to use the bitcoin or ethereum blockchains or by creating entirely new blockchains. And while new technology often sounds like science fiction, blockchain technology has been receiving an extraordinary amount of attention, therefore it is not a surprise people are starting to think blockchain as the answer to everything. This has been going on for more than three years, and the results are finally starting to come in. As with any new technology, there are some aspects that remain unclear, but here are 3 things we know for sure a blockchain can do:
Act as a System of Record
Essentially, blockchains are a creation in information registration and distribution. They are useful when recording both static data, such as a registry, or dynamic data, like transactions, thus making it an evolution in systems of record. In regards to a registry, data is able to be stored on blockchains in any of the following ways:
- Hashed Data: This can be presented alongside the function that created it to illustrate that the data wasn’t messed around with
- Unencrypted Data: This data can be read by every blockchain participant in the chain. It is also 100% transparent.
- Encrypted Data: This can be read by those with a decryption key. The key will provide access to the data on the chain and can prove who added the data and when.
It is important to keep in mind that blockchain hashes tend to be done in combination with the original data stored off-chain. For instance, digital “fingerprints” are often hashed into the chain, and the main body of information is stored offline. A shared system such as this can change the way disparate organizations work together. As of right now, with data deposited in private servers, there is a massive cost for inter-company transactions which involve procedures, processes, and cross-checking of records.
Create Digital Identity
In blockchain technology, the identity component is fulfilled through the use of cryptographic keys. When a public key and a private key gets integrated, it creates a strong digital identity reference based on possession. Here’s the simple version: a public key is how you are identified in the crowd (kind of like an email address) and a private key is how you express consent to digital interactions. This is significant as cryptography is a key force behind the blockchain revolution.
Act as a Platform
Interestingly, cryptocurrencies were the very first platform developed using blockchain technology. But now, people are starting to move from the idea of a platform to exchange cryptocurrencies to a platform for smart contacts. Even though the term ‘smart contacts’ has been branded as a catch-all phrase, the concept can actually be divided into three categories:
- A) Vending Machine Smart Contracts:
This category was introduced in the 1990s by Nick Szabo. It represents when machines engage after receiving an external input, like a cryptocurrency, or else send a signal that activates a blockchain sequence.
- B) Smart Legal Contracts:
These contracts are sometimes referred to as Ricardian contracts. The majority of this application is based on the idea that a contract is a meeting of the minds. Further, those contracts are the result of whatever the consenting parties agree to. This means a contract can be a mixture of a written agreement, a verbal agreement, and now also some of the useful aspects of blockchains such as tokens, auditing, timestamps, business logic, and document coordination.
- C) Ethereum Smart Contracts
These contracts are programs which control blockchain assets, executed over internations on the ethereum blockchain. For those who don’t know, ethereum is a platform for smart contract code.
- Prove Immutability
One feature of a blockchain database is that it has a history of itself. Due to this, blockchain databases are often referred to as immutable. What does this mean? Well, in other words, it would be a massive effort to try and change an entire entry in the database, as it would require changing all of the data that comes afterward, on every single node in the network. Because of this, it acts more like a system of record rather than a database.
It is essential to know that blockchains are not new. In fact, they are built from a special orchestration of three previously existing technologies: private key cryptography, P2P network, and protocol. Featured Image: Depositphotos/© Tzido