Virtually unheard of just a few years ago, blockchain has burst into the public consciousness, tipped as an emerging technology that will change the world. Starting life as the platform behind bitcoin, it has emerged from the shadows, placed at the peak of Gartner's Hype Cycle last year – second only to machine learning - and attracting over a billion dollars in investment.
But despite investors' willingness to throw money at it, there is still a healthy dose of scepticism and trepidation around blockchain, with many saying it won't live up to the hype. So, what's really going on?
What exactly is blockchain?
The first challenge is understanding how it works, so a brief explanation. In essence, blockchain is a decentralised database that holds a continuously growing list of records or transactions in real time. Each set of transactions is stored together as a block, which is connected to a succession of other blocks in chronological order. Each block uses a digital signature that makes them verifiable, permanent, transparent, and extremely secure.
Blockchain has three inherent traits that make it special:
All transactions are verified by consensus from other parties on the blockchain
Everyone who is participating in the blockchain has a synchronized record of all transactions that have ever occurred
Special rules can be built into each transaction to create automatic responses to certain outcomes ("smart contracts")
Why could it change the world?
Think of all the different data sets, online and offline records and contracts that you have contact with on a daily basis, whether in your work or personal life. Now, think of all the complexities involved in analysing, cross-referencing and communicating between these different intermediaries, systems, contracts and agreements, whether that's to check ownership, identity, authenticity or make a transfer of some sort. It's work like this that keeps millions of accountants, lawyers and administrators in employment!
With blockchain, this complexity would – in theory - become a thing of the past because every transaction, contract and agreement would be automatically recorded, verified and centrally accessible. There would be no need for intermediaries, checks and bureaucracy to prove the trustworthiness or authenticity of your data, as it would be inherently secure and guaranteed. The reduced risk, would mean valuable cost and time-saving benefits in everything from payments to supply chain, government records to tracking taxpayer money. It would all be streamlined and integrated into one big super database.
This vision is why proponents of blockchain say it will revolutionise business processes across a range of sectors by removing duplication of effort, unnecessary processes, and guaranteeing greater integrity of data. In this picture, blockchain is the driver for new business models, improved risk mitigation and greater predictability within business. With all parties in a transaction verified by digital signatures, it could open the way to new trusted networks, markets and value.
**Sounds great – what's the catch?
In theory, it's easy to see why blockchain has been hyped up so dramatically. But it isn't as straightforward as it seems. The technology is in its infancy and bitcoin is still the only established and successful implementation of it in practice. That means it's relatively untested and has several sizeable hurdles to overcome before the utopian vision outlined above can become reality.
At present it's clunky to use, facing problems with transaction speed, verification of transactions and the amount of computer power used by the platform. As each record must be verified by all parties in the ledger, there are concerns that this could lead to delays and uncertainty – exactly the problems it is supposed to solve. There is also the challenge that it is simply too complex for mainstream adoption, unless it can be packaged up in a more user-friendly and easily accessible way.
Other worries concern integration and universal adoption, as to be truly effective the same version of the platform would need to be implemented across all industries and organisations. Many believe achieving this level of integration and agreement is unlikely, limiting the efficiency savings that would be possible.
Security is not yet a given and users would need to be a lot more robust reassurance before mainstream adoption is possible. Despite claims of its security and privacy strengths, blockchain involves various systems and processes that are currently untested. Users would need to be 100% confident about the existence and accuracy of all the users in the blockchain network and would require checks to verify the digital signatures and other parties involved.
A step by step approach
There's no denying that as a nascent technology, blockchain has its issues, but that doesn't mean it won't become hugely important and maybe even live up to the hype in a few years' time. In fact, many commentators are saying it won't ever become a mainstream technology, but one of the foundational building blocks on which other technologies are built – similar to the Linux open source operating system. Only time will tell. But in the meantime, businesses are encouraged to proceed with caution – ignore blockchain at your peril, but don't bet the house on it either.
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