Blockchain is already proving to be a gamechanger across the board for a variety of global industries — from finance to agriculture and dozens of industries in between.
Blockchain as a technology is growing robustly as a result.
According to the Global Blockchain Market Report, the market value projection for the blockchain sector will stand at over $60 billion by 2024. That’s up from just $706 million in 2017.
The U.S. and China are the countries with the largest stake in blockchain solutions right now, but countries like South Korea and India are also pouring billions into the technology, and looking to catch up fast.
Still, millions of global consumers have no idea what blockchain is and how it will change the way they conduct commerce in the coming years.
Here’s a closer look at the blockchain phenomenon and what it means to global industry and the consumers participating in those industries.
What Is Blockchain Technology?
Broadly defined, blockchain is a distributed ledger system that offers stronger security to the real-time digital economic process. Structurally, blockchain is comprised of blocks of digitally recorded data.
According to the Global Blockchain Market Report, demand for blockchain technology is burgeoning, in key areas like finance and in technology. For example, the “largest users” of the IBM (IBM – Get Report) cloud increasingly count on blockchain to properly manage their supply chains. The report notes that 60 IBM cloud data centers see blockchain as “the top application driving growth” across the globe.
Blockchain growth has accelerated now that system developers have figured out how to harness blockchain with worldwide digital technologies.
“Digital technology is dominant worldwide,” the blockchain report states. “The old mainframe digital technology managed data in batches, now digital data is managed in real-time over the internet. Blockchain brings digital technology into real-time computing systems management. It has the ability to change all aspects of the digital economy, including conducting business, delivering healthcare, shopping, enhancing education and learning, entertainment, and staying connected with a social world.”
The global financial sector has been particularly aggressive — and successful — in bringing blockchain to the masses.
“Online payments have gained huge traction,” the Global Blockchain Market Report states. “Card-based payment methods, credit and debit cards have become dominant. Blockchain supports all these changes by creating increased speed of transaction processing and greater efficiency in real-time processing.”
The History of Blockchain
For a major breakthrough global technology platform, blockchain’s history is a relatively short one.
Essentially, blockchain traces its historical origins to 1991, when cryptographers Stuart Haber and W. Scott Stornetta published a landmark paper entitled “How to Time-Stamp a Digital Document.”
Essentially, the duo’s theme focusing on the creation of a cryptographically secured chain on blocks (called by the authors as an “immutable ledger”) that could withstand any tampering of time-stamped documents.
What the authors came up with was a “digital safety-deposit box” that recorded the time and date of a specific document’s creation, and electronically stored a copy of that document for safekeeping.
While Haber and Stornetta planted the seeds of blockchain in the early 1990s, it wasn’t until 2008 that the technology began picking up speed. At that time, an entity (it could be a real person but nobody knows) named Satoshi Nakamoto created the first digital ledger technology called Bitcoin, which officially kicked off the global cryptocurrencies market.
Nakamoto followed up with a 2009 whitepaper on blockchain cryptocurrencies called “Bitcoin: a peer-to-peer electronic cash system” that laid out the structure of a decentralized digitalized blockchain platform that spread control out to legions of global users, with no single entity in control of the platform.
That set the stage for commercialized blockchain as the first genuine peer-to-peer distributed and secure computing ledger that could record transactions on a global scale, one block linked to another block at a time.
That gave blockchain the ultimate democratized factor — a digital computing platform that enabled users to conduct transactions with no need for a centralized authority calling the shots, and nobody collecting fees and charges on those transactions in the process.
The platform was managed not by a centralized figure, but by an army of autonomous global users who leveraged peer-to-peer networks and a time-stamping server to conduct financial transactions (currencies at first) approved by the user themselves.
Shortly after, Bitcoin Market, the first global cryptocurrency exchange, is established and its total market cap quickly crests $2 billion, casting more of a spotlight on both blockchain and bitcoin technologies. By 2018, Switzerland and Japan began officially accepting cryptocurrency payment and 15% of finance companies begin using blockchain in their everyday financial transaction operations.
Given the historical trends linked to cryptocurrencies and blockchain, it’s perhaps easiest to explain the business applications of blockchain as a series of innovations
First innovation: Bitcoin, the king of the cryptocurrency world was the first major step in blockchain’s evolution. The transaction-oriented model for bitcoin was tailor-made for blockchain, and it still shows today, as bitcoin’s market cap has crested $145 billion.
Second innovation: The next step for blockchain was actually called “blockchain.” The idea here was that, with the success of bitcoin, blockchain could be detached from digital currencies and succeed on its own as a decentralized technology platform.
With immediate success in various industries, most notably banking and finance, aerospace, and food and agriculture, blockchain research and development has grown significantly.
Third innovation: Innovation three focused on the so-called “smart contract”, which introduced Ethereum to the cryptocurrency market. This iteration enabled fixed income financial products and commercial loans to be released via blockchain, which up to that point had only worked bitcoin tokens.
Fourth innovation: The next, and most current, blockchain iteration is known as “proof of stake”, a digital technology models that give an individual who owns a significant amount of cryptocurrency coins more power over someone who doesn’t.
That power enables stakeholders to be able to mine or validate block transactions based on the number of cryptocurrencies (like bitcoin) that the individual owns. Proof of stake supplants “proof of work” which is deemed by blockchain experts as more difficult and inefficient as the new stakeholder model.
Fifth innovation. The last phase of blockchain actually hasn’t occurred yet, but “blockchain scaling,” which would make financial transactions faster, is in the works.
Compared to traditional financial transaction systems like Visa (V – Get Report) and PayPal (PYPL – Get Report) , current blockchain transactions are slow. While Visa, for example, can manage over 1,660 transactions per second, bitcoin can only handle seven transactions per second.
Often, bitcoin users who don’t have deep pockets and pay low transaction fees are forced to wait up to 13 minutes for their transactions to be cleared (that’s because the higher transaction fee you pay the faster the block manager or “miner” clears your transaction.)
For cryptocurrencies to compete with mainstream financial tools like credit and debit cards, it’s going to need to be much faster at the point of transaction, and that’s the promise of blockchain scaling.
The scaling phase, with myriad iterations and technologies involved, basically aims to make blockchain execute transactions per second faster than it can right now, thus setting up cryptocurrencies as a more viable financial currency.
As blockchain is, in actuality, a chain of blocks that holds data and information, it needs a unique stamp that validates the block.
That’s come from a blockchain “hash”, which notes the block’s unique time stamp, transaction data and a record of the most recent block that preceded it. In a word, the has is a sequence of random tags that track and validate blockchain transactions.
The idea is to use the blockchain to pass information along the network, one block at a time. The hash marks each block, providing the tracking mechanism required to pass that block along from one party to another, safely and securely.
Once an individual creates a new block, that block is validated across potentially millions of computers across the world, and then is added to the blockchain with its own individual record and history.
Blockchain’s usefulness is predicated on the network’s participants agreeing to the order of the transactions made on the network.
It’s really a system of checks and balances that ensure the integrity of each block’s transaction and account balances, giving participants a trusted and verified system of engaging in digital commerce.
Blockchain Privacy and Security
Blockchain is often heralded by advocates as being transparent and democratic, offering access to everyone. To a point, that’s true.
After all, anyone can access content available on blockchain but doing so on a large scale is virtually impossible, as there may be millions of copies of similar blockchains to track and monitor.
Additionally, as cryptocurrency transactions on blockchain don’t identify transaction participants (aside from a user name or digital signature), blockchain is hardly transparent about who’s conducting business on the blockchain and the network that supports the widespread use of the platform.
That makes blockchain far less private than users might think.
Yet the fact that blockchain users participating in network financial transactions are confidential (but not exactly anonymous) makes it difficult for cyber-predators to identify them and steal their personal data.
It’s also highly difficult to change any information input and confirmed on the blockchain, as every block added to the blockchain is validated with a “hash” or digital stamp that is unique to each transaction.
With each block on the blockchain different because of its unique hash, it can’t be altered by third parties and that helps reinforce a stronger sense of system security on the blockchain.
The Takeaway on Blockchain
Blockchain can mean a lot of different things to many different people, but its promise as a means of revitalizing stale business processes and making transactions more democratic — and safer — when conducting transactions digitally, is substantial.
Thus, as disruptive technological innovations go, blockchain is a blockbuster in a highly public and transformative way.
Whether you’re a novice investor looking to get into cryptocurrencies or a large company CEO looking to turbo-boost your business processes, the more you know about how blockchain works, the more you can leverage its growth potential.
First Published at What Is Blockchain Technology and How Does It Work? – TheStreet.com