What is Blockchain?
Best known for its role in the rise of cryptocurrencies like Bitcoin, blockchain is a revolutionary technology that has the potential to transform how business transactions are conducted. For now, blockchain is primarily applied in digital financial transactions, like cryptocurrencies, but it presents a lot of opportunities for a wide variety of industries—from home entertainment to real estate to contract drafting —and beyond. This short article offers a brief introduction to blockchain, provides insight about its current uses, and summarizes some future applications.
Fundamentally, blockchain is a decentralized, public, digital ledger of transactions. It is a database that is duplicated across a network of computers, called “nodes.” Each node contains the same information. The information in a blockchain is stored in “blocks.” Each block holds information about the transaction or transactions, a timestamp, and a link to the immediately preceding block. Each block links to the prior one, forming a chain, or blockchain.
Because a blockchain creates a public record of the transaction, every party to the transaction can monitor its status in real time. Additionally, the authenticity of a block can be confirmed by the network, eliminating the need for centralized authorities, like banks, or trusted intermediaries. Finally, once a transaction is recorded, it cannot be changed retroactively, making the transaction information immutable. Altogether, these features create a highly reliable digital system for processing transactions.
Blockchain has transformed how the financial industry operates, specifically in regard to capital markets. Parties have raised billions of dollars through token sales—commonly known as initial coin offerings (ICOs). Absent from these ICOs are the conventional disclosures and hands of numerous intermediary professionals who typically assert control to the access of public markets. Generally speaking, token sellers avoid the historic gatekeepers of public capital markets, such as investment bankers and the nation’s securities exchanges, by drafting informal whitepapers for the ICO. Further, in place of the traditional marketing scheme, token sales are informally announced through social media and transactions occur on cryptocurrency exchange websites.
Over the past year, Bitcoin and other types of cryptocurrencies have generated immense interest among blockchain enthusiasts, investors, and regulators around the world. While most of the attention has been on Bitcoin and ICOs, the technology behind this phenomenon—the blockchain—has the potential to break barriers beyond the financial sector. Similar to how Uber has replaced taxi cabs and Netflix has, at least to an extent, displaced cable television, blockchain technology is disruptive in the sense of its potential to democratize commerce through enabling direct transactions between individuals in the market.
Making an early use of the blockchain technology, Sweden has spent the last two years moving its land registry to a blockchain platform. It is now poised to complete its first real estate transaction using a blockchain system. Showcasing the blockchain’s potential for efficiency, the new system is expected to significantly reduce the processing time of property transactions, from the three to six months, to mere hours. (Anand Shefali, A Pioneer in Blockchain Real Estate Emerges in Europe, Wall Street Journal (Mar. 6, 2018), https://www.wsj.com/articles/a-pioneer-in-real-estate-blockchain-emerges-in-europe-1520337601).
The shift away from transactions controlled by intermediaries will lead to significant changes in how financial and real estate transactions are processed in the future. Blockchain is also poised to transform how lawyers execute contracts, by enabling the development of smart, self-executing contacts. Additional examples of areas that blockchain is expected to transform include supply chain management, insurance, cloud storage, government and voting, healthcare, and energy management.
For more information on the industries blockchain technology is set to change see Future Thinkers' article.