In 2009, an anonymous individual under the name of Satoshi Nakamoto created the Bitcoin. He reflected upon the currency presently used where the banks act as the trusted third party between two individuals during a transaction. His motivation was to remove the issue of trust, which cannot always be guaranteed, and create an “electronic payment system based on cryptographic proof” (Nakamoto). Once the Bitcoin was created, it needed a system to regulate and keep track of every transaction while removing double spending and eliminating hacking, tampering and fraud. The Blockchain was the database created to ensure a reliable, trustworthy, decentralized system to accomplish this task.
What are Blockchains?
In order to understand Blockchains better, we first need to define the following terms (Bitcoin, 2015):
- Transaction – Currency exchange between two parties.
- Node – Any computer connected to the bitcoin network.
- Hash – An algorithm which designates a unique number for a large amount of data, which completely changes with any small modification in the large data.
- Block – Permanent record of a transaction.
- Mining – Process of adding transactions to the Blockchain.
By definition, Blockchain is a distributed public ledger of transactions initiated for bitcoin transactions (What is the Blockchain). Every time a bitcoin exchange takes place, a block is created with a hash of the previous bitcoin transactions or previous blocks (Bitcoin, 2015). This creates a sequence of blocks known as the Blockchain. Every node contains a copy of the Blockchain. How the Blockchain works is that each node, or computer solves a complicated problem. The result is verified among 50% of the nodes out there. If it matches, it is validated and the block is added to the system creating a chain of blocks (Lantz, 2016). If a block of data on a node is hacked and tampered with, all the other nodes will remain intact; the tampered block will be detected and the information from it will be rejected (Lantz, 2016). Due to the algorithm and calculations involved to create a single block, double spending and tampering of a block becomes impossible.
Trust has always been an issue when exchanging information between two sources in a centralized environment. In the case of a bank, customers have lost trust in banks since the financial crisis in 2008 (Financial Crisis, n.d.). Customers never know if the bank is reliable or will claim to be bankrupt and steal all of their savings. There is also the issue of the bank transferring money through a network of banks during an exchange when the customers don’t know where their money is at any one moment in time. The issue of trust also arises when it comes to an election; voters never know if their electronic votes have been altered or if they are seeing the results of their true choices. A decentralized environment has transparency, authenticity and auditing which allows detection of fraud (Lantz, 2016).
The biggest potential in Blockchain technology lies with its inability to tamper or alter data. It creates a secure and trustworthy method of transferring information between two mediums in a decentralized environment. Decentralizing means removing authority from a single individual or central party and giving it to local parties. For example, the bitcoin has decentralized payment methods; it has taken the power away from centralized banks and given it to every individual connected to the Blockchain (Lantz, 2016). Blockchains have the potential to decentralize practically all digital transactions, not just currency. Not only that, but, as mentioned, Blockchains have a digital record of every transaction ever made. Paper transactions can thus be eliminated through the use of Blockchains which will lead to cost savings while increasing efficiency by removing the need to track physical documents.
Blockchains will completely change the future of business as we know it. By switching over to Blockchain technology, the need for a facilitator between two mediums will be eliminated. No one will have to worry about a trusting body or loss of money during transactions from one party to another because it will all take place within the system and within real time, while staying recorded in the Blockchain. As soon as a new Block is created, the transaction will have completed and both the parties involved will have received their payments directly and instantly. Blockchains can also be used in marketing by associating a block with every authentic product that enters the market. It will eliminate, or at least make the buyers aware of fake brands or counterfeit products by allowing the customer to track the lifetime of the product through its Blockchain. In the case of voting, Blockchains will prevent anyone from altering the information stored by the voters and thus eliminate rigged elections.
All in all, Blockchains have the potential to eliminate the phrase “Life isn’t fair” by making life much more fair than it currently is. It has the potential to satisfy consumers when they purchase expensive items such as shoes and headphones by eliminating fraud and counterfeits. It can prevent a corrupt government from reigning by facilitating a proper election. It can safely and efficiently follow through with large and expensive business deals without the involvement of a third party such as banks. And finally, Blockchains can eliminate the need to trust strangers and place all the trust in a system which cannot be tampered with.
The biggest issue with Blockchains, as discussed by David Gilbert, is the amount of time it takes to solve an exchange with bitcoin (Gilbert, 2016). In application to big businesses and federal elections, this issue would not be acceptable. For starters, elections will lead to thousands of voters submitting their ballots which will then need to be processed instantly if possible in order to get the election results as soon as possible. If an average of 10 minutes is required to process one transaction in a Blockchain, it will be insane to have to wait around so long for all the transactions to complete for an election. Similarly, large business require efficiency to succeed. Efficiency involves getting results in the quickest time possible, which Blockchain technology will make very difficult.
Just because Blockchains are slow does not mean they should be eliminated. Blockchains have great potential and effort should be made to resolve them in order to perfect it for future use. If the mining process is enhanced for quicker results, Blockchain is the next big step for the future of business. If implemented, Blockchains can change the way society functions. It will reduce many tedious and robust jobs such as banking personnel, store clerks and ballot counters. It will decentralize our society, make it more efficient and eliminate the need to trust anyone or anything.
Bitcoin. (2015, October 21). Retrieved from BitcoinWiki: https://en.bitcoin.it/wiki/Block_chain
Financial Crisis. (n.d.). Retrieved from Investopedia: http://www.investopedia.com/terms/f/financial-crisis.asp
Gilbert, D. (2016, March 4). Bitcoin’s Big Problem: Transaction Delays Renew Blockchain Debate. Retrieved from International Business Times: http://www.ibtimes.com/bitcoins-big-problem-transaction-delays-renew-blockchain-debate-2330143
Lantz, L. (2016, May 24). New Kids on the Blockchain. Retrieved from TEDx Talks: https://www.youtube.com/watch?v=A1Vbrxkqjwc
Nakamoto, S. (n.d.). Bitcoin: A Peer-to-Peer Electronic Cash System. Retrieved from Bitcoin: https://bitcoin.org/bitcoin.pdf
What is the Blockchain. (n.d.). Retrieved from Investopedia: http://www.investopedia.com/video/play/what-blockchain/