When Blockchain technology hit the air-waves years ago, it was considered by a few within the circle to be the next big thing. It was seen as a disruptive innovation that would take over the world of finance, technology, with the internet its greatest facilitator.
Blockchain in technical terms is regarded as a distributed collection of records. It is also described as a public ledger of all transactions or digital events that have been carried out within a network. Each transaction in the ledger can be verified by the participants in the transaction. This information is not transferable or subject to retrieval once deleted.
Blockchain’s Relationship with Bitcoin
Blockchain is almost readily intertwined with Bitcoin, which was introduced by an acclaimed Japanese, Satoshi Nakamoto, who authored the Bitcoin white paper, “Bitcoin: A Peer-to-Peer Electronic Cash System”. Satoshi created and deployed Bitcoin’s original reference implementation in 2009. This was when the first software of the digital currency with decentralized (blockchain) system was introduced.
Although the original identity of this inventor has remained surreal, Bitcoin has remained largely appreciated and highly sought after. In a data revealed by Statista and syndicated by Bitcoin Market journal, almost 32 million Bitcoin wallets had been set up globally by Dec 2018. Also, an estimated five percent of Americans hold Bitcoin, with over 7.1 million active Bitcoin users. The leading US-based cryptocurrency exchange, Coinbase, had over 13 million users.
In this, users in the emerging markets and largely underdeveloped countries were not considered in statistics. There was also consideration for people in countries that had stringent laws on cryptocurrency use and transactions. This obviously places the number far higher than what is recorded.
With Bitcoin making the headlines for many reasons, blockchain, which is its underlying technology has largely gained traction in many areas. The major communities and sectors of blockchain interest are the finance and tech worlds. It’s capacity to screen jobs and previously lax industries has led to its recognition as one of the most important innovations of man like the internet itself. The financial industries that once saw it as a threat now look for opportunities to embrace its application so as to make operations smoother and faster.
The world’s biggest financial institutions are funding research and other projects to leverage on blockchain technology to avoid the impending dinosaur experience. An interaction with finance-related firms see them revel in the unending opportunities thrown up by blockchain technology. Its potential paves way for it to be the leading light of growth in a digital economy where there is a high dependence on the internet for almost everything. Key areas being those that involve human activities from commerce to personal data and general life events.
With blockchain comes what is referred to as smart contracts. According to Investopedia, Smart Contracts are self-executing contracts with the terms of the agreement between parties being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
Self-executing contracts? Yes! That defines the nature of blockchain transactions that involve extant rules in an agreement. The rules provide that when a given circumstance occurs, certain specific results must automatically follow. In other words, there are pre-agreed conditions and set out terms which guide the execution of the contract without the need for third party. The implementation of these contracts without third party is what strengthens the blockchain technology.
Initial Risks around Blockchain Technology
In all these, the ease of transaction and removal of a third-party confirmation for the execution of contracts put the margin for risk on the high side. One of the earliest, high-impact hacks of the blockchain technology still elicits more skepticism in the mind of the naysayers. The Japan-based Bitcoin exchange Mt. Gox was the first notable casualty of an infamous Bitcoin hack. Mt. Gox had been operating from 2010 and was the biggest Bitcoin exchange at the time. It was well spread knowledge that the website was hacked not just once but twice before it went insolvent.
The first hack occurred in June 2011 when the hackers got hold of Mt.Gox’s auditor’s credentials and recorded a transfer of 2609 Bitcoins. The Bitcoins was transferred to an address for which Mt. Gox had no keys. The website’s operation was suspended for several days to fix the glitch. Afterwards, operations resumed and the confidence of the platform users seemed to have been restored.
In 2014 came the second attack. At the time of this attack, Mt. Gox was responsible for two-thirds of Bitcoin transactions globally. On this occasion, the stolen Bitcoin amount was big enough to take the company out of business. The company, Mt. Gox, stopped its operations and filed for bankruptcy, reporting that it had lost over $350 million worth of Bitcoins from its exchange. Investors had lost their stored Bitcoin, and there was no reprieve this time nor a refund.
There are fundamental characteristics of Blockchain that makes it a unique technology. These can be summarily explained as follows;
- Decentralization: There is no need for verification of transactions through a central trusted agency. In the conventional systems, this results in bottlenecks and operational costs.
- Anonymity: This is one area where many government and regulatory agencies have a hard time with the blockchain technology. It could pave the way for concealing the identity of users, as addresses and the intrinsic characters of the initiators and receivers are hidden from any public information source.
- Tenacity: There is a near-zero downtime in verifying operations to check for validity. Fishy or suspicious operations are terminated when detected.
- Auditability: Data transactions can be monitored or screened. These data can be easily verified and tracked. In instances where there are disruptions in the chains, the transaction can be reviewed and aligned properly to continue with the sequence
- Permissibility: Public blockchain transactions are visible to the public. This is the level at which the scrutiny is set while in private blockchain transaction, the level of permissibility is set by the parties engaged in the transaction.
- Indivisibility: The records stored in blockchain transactions are encrypted and presented as units or nodes of a chain. While they can be monitored, the transactions cannot be broken up to gain access to isolated units. Once broken up into parts, the command would present as tampered thereby becoming void.
- Efficiency: Blockchain transactions come with a lot of efficiency as the user protocol is simplified to give way for ease.
What Next for Blockchain?
Conservative economists have expressed concerns that with digital currencies and cashless transactions come deflation. This will in turn lead the government to reduce interest rates so as to increase public spending thereby creating a spending-induced inflation.
This idea has been a subject of prolonged arguments. However, it is interesting to know that there are tightening regulations and fiscal policies that have slowed the permeation and acceptance of blockchain technologies in the financial world. This is more pronounced in conservative countries and well as the emerging markets.
Blockchain technology offers a plethora of opportunities in a rapidly changing world. Prior to its advent, there was a great need for digitizing operations especially in the world of finance. This is a sector where blockchain has had its major mainstream activities, and a resistance to its growth would be walking on thin ice.