Blockchain: The Game-Changing Technology Behind Cryptocurrency
When bitcoin first came on the scene in 2009, very little was known about the mysterious cryptocurrency, and its value, if it had any at all, was negligible. Even the true inventor of the technology was unknown, going by the pseudonym Satoshi Nakamoto, according to Julia Finch’s Guardian article, “From Silk Road to ATMs: The History of Bitcoin.”
Eventually, black market buyers and sellers saw in bitcoin a way to anonymize money transfers, especially across borders. Silk Road, an illegal marketplace on the deep web, began to use bitcoin to facilitate transactions.
The limited supply of bitcoin (21 million coins, only about 80 percent of which have been “mined”) seemed to be enough to give value to the digital currency in the eyes of those who used it.
Fast-forward a few short years and millions have downloaded cryptocurrency investment software and are investing in digital money the same way they might invest in stocks and bonds.
Hundreds of new cryptocurrency alternatives have sprung up to compete with bitcoin. Talk of blockchain technology (the technology behind cryptocurrencies) is now front-page news, and the value of cryptocurrency continues to rise. In March of 2018, buying just one bitcoin would cost an investor more than $9,000.
But cryptocurrency is only one use for blockchain technology. Students pursuing an online master’s in business administration would do well to familiarize themselves with this technology because soon it could revolutionize everything from corporate finance to identity management.
What Is Blockchain and Why Is It, Revolutionary?
When major financial firms such as JPMorgan Chase, Citigroup, and Credit Suisse began investing heavily in cryptocurrency, one can be sure that they saw something of value in the blockchain technology that makes it possible.
But what exactly is blockchain, and why are international banking firms now interested in something that less than a decade ago was nothing more than Monopoly money for black market merchants?
“Information held on a blockchain exists as a shared — and continually reconciled — database,” explains entrepreneur and investor Ameer Rosic in “What is Blockchain Technology? A Step-by-Step Guide for Beginners” on blockgeeks.com. “… The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of the information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.”
In other words, blockchain is distributed (via the internet) ledger operating constantly on all associated computers. This digital ledger can be used to record financial transactions and almost anything else of value, from real estate sales and purchases to transfers of products along the supply chain.
“Money, equities, bonds, titles, deeds, contracts, and virtually all other kinds of assets can be moved and stored securely, privately, and from peer to peer, because trust is established not by powerful intermediaries like banks and governments, but by network consensus, cryptography, collaboration, and clever code,” write consultant Alex Tapscott and author Don Tapscott in their Harvard Business Review article, “How Blockchain Is Changing Finance.”
“For the first time in human history,” they continue, “two or more parties … can forge agreements, make transactions, and build value without relying on intermediaries (such as banks, ratings agencies, and government bodies such as the U.S. Department of State) to verify their identities, establish trust, or perform the critical business logic — contracting, clearing, settling, and record-keeping tasks that are foundational to all forms of commerce.”
Considering the number of ways this new technology can be used to securely catalog different types of records and sensitive information, one can hardly wonder why so many industries are now investing in blockchain solutions.
How Would Blockchain Change Future Economics?
Distributed ledger technology is now poised to significantly disrupt several large industries. Some of these industries are very close to implementing blockchain on a large scale, while others are still in the early stages of development.
First and foremost, the financial industry stands to benefit greatly from distributed ledgers. Blockchain in finance could eliminate the need for traditional ledgers and clearinghouse technologies.
The World Economic Forum has studied the use of blockchain in financial services extensively, publishing the results of its research in “The Future of Financial Infrastructure.” The forum’s key findings on distributed ledger technology include:
- Blockchain can potentially establish new financial services infrastructure and processes.
- Distributed ledgers will facilitate next-generation financial services infrastructure that can be used by existing and emerging technologies.
- New financial services powered by blockchain will challenge traditional orthodoxies in today’s business models.
- Blockchain incumbents, innovators, and regulators will have to collaborate if distributed ledgers are going to realize their full potential.
As with financial services, identity verification has become increasingly more difficult and fraught with potential security breaches over the past two decades or so. But innovators are using blockchain technology in an attempt to solve this problem, too.
Self-sovereign ID would be a new form of identification that would change the way we verify our identities and access our sensitive information over the internet. When implemented, this new blockchain-based ID system would be unalterable and secure, unlike the easily hacked passwords and verification systems currently in use.
“[Self-sovereign ID] could collect all of the small bits of a user’s identity floating online like Social Security information, medical records, social media credentials, and use a single key that is stored on Blockchain’s ledger,” financial journalist Roger Aitken writes in his Forbes article, “Blockchain To The Rescue Creating A ‘New Future’ For Digital Identities.”
“For pure identification reasons,” Aitken continues, “a self-sovereign ID could quickly replace the myriad documents people use daily — be it licenses, passports, Social Security cards, medical insurance cards — with a single key that can be matched against an immutable ledger.”
Other areas that may soon benefit from blockchain technology include Internet of Things (IoT) devices, intellectual property rights protection, file storage and data management, pharmaceutical supply chains, and even stock market trades.
“Virtually any function in a company where record-keeping is critical to effective management is a candidate for blockchain-based disruption,” writes seasoned tech executive William P. Miller in “4 Things About Cryptocurrencies and Blockchains You Need to Know Right Now” on CIO.com. “… Functions that require shared documents or other information across multiple parties could benefit as well, such as legal, M&A [mergers and acquisitions], and treasury.”
In the years to come, personnel in managerial roles in a wide range of industries could be involved, in one way or another, with distributed digital ledgers of some sort. Blockchain is very likely here to stay.
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The Guardian, “From Silk Road to ATMs: The History of Bitcoin”
Blockgeeks.com, “What is Blockchain Technology?”
Harvard Business Review, “How Blockchain Is Changing Finance”
WeForum.org, “The Future of Financial Infrastructure”
Forbes, “Blockchain To The Rescue Creating A ‘New Future’ For Digital Identities”
CIO.com, “4 Things About Cryptocurrencies and Blockchains You Need to Know Right Now”