A whole new financial sector has been lurking in the shadows, brewing in the minds…
Cryptocurrency and Business – Part 2: Blockchain
Welcome to Part 2 of my series on cryptocurrency in business. In Part 1, we discussed some basics of cryptocurrency, and in this article, we’ll be covering the engine that drives cryptocurrencies; blockchain.
Thanks again to George Siosi Samuels for his time in the interview that he contributed to assist with preparation of these articles.
What is blockchain?
Blockchain sounds a bit complicated, but it’s actually a pretty straightforward concept. It’s simply a list of records or ‘blocks’ that are linked together using a digital ‘chain’. Each block is cryptographically protected and contains information about the previous block. It’s a digital public ledger, the analogue equivalent of which would be a list of coded information written on a piece of paper and displayed on a public noticeboard.
Blockchain is the underlying operating system for the cryptocurrency market. It helps solve the challenge of a decentralised two-way exchange between two parties and takes the place of a ‘trusted third-party’ such as a bank, in a traditional centralised transaction.
Inherent in their design, blockchains are highly secure and utilise a distributed, decentralised (peer-to-peer) computing system. The blockchain transactions allow one user to transfer digital information to another user via a combination of public and private keys. Through the use of the public ledger, all users can see that a transaction has taken place, without seeing the exact details of the transaction.
As covered in my first article, the cryptocurrency Bitcoin was invented by an unidentified person (or group) known as Satoshi Nakamoto in 2008, who also invented blockchain as the technology that made it all possible.
An integral part of the blockchain technology is a process known as ‘mining’. A miner is simply a high-powered computer that runs the calculations necessary to validate a transaction on the blockchain. As a reward for this effort, the miners receive cryptocurrency, i.e. they are being paid in cryptocurrency for applying their computing power to process a transaction between two parties.
Some big miners have deployed large computer arrays to mine cryptocurrency, which are power-hungry beasts that generate lots of heat and are expensive to set up and run. Other miners use a sharing model where they pool resources together to share the load.
‘Mining rigs’ refer to the hardware that is used to mine cryptocurrency, and they are rated by the number of calculations they can perform per second, known as the ‘hash rate’. The higher the hash rate, the more calculations that can be performed, and the more likely a miner will solve a particular problem, which allows a transaction to proceed and the miner to get paid.
While blockchain is most commonly associated with cryptocurrencies, that is just one of the many possible uses of the technology. In addition to cryptocurrencies, blockchain can be used wherever security and privacy are important. Some examples of potential uses of blockchain are provided below:
- Medical records.
- Identity management.
- Ownership records.
- Property titles and conveyancing.
- Real estate transactions.
- Company ownership and share registries.
- Image management rights, e.g. In January 2018, Kodak announced its Photochain and KodakCoins initiative, which caused an enormous spike in the company’s share price from US$3.10 before the announcement up to a peak of US$11.55 just two weeks later!
- Transaction tracking and processing.
- Provenance (history) of artworks, antiques and other items of value.
- Smart contracts, which are automatically fulfilled in the event that certain pre-defined conditions are satisfied, without additional human interaction.
- Supply chain management.
- Incorporating businesses.
- Tax collection.
- Bill payments.
- Traceability of items with expiry dates such as food products.
- Online voting.
- Energy markets.
- Peer-to-peer lending.
- Copyright / rights management / intellectual property / ownership.
- Music distribution rights, e.g. license fees can be automatically paid to the artist whenever content is played.
- Any transaction between parties, where the blockchain can take the place of a trusted third party.
To help in these potential new areas, Blockchain as a Service (BaaS) is an emerging field. With big players such as Microsoft and IBM already offering solutions for users to piggyback on their technology with out-of-the-box solutions that do the heavy lifting for customers who are looking for blockchain applications, so they don’t need to get down and dirty with deploying the latest tech to make it work.
What does blockchain mean for your business?
We are in the very early days of blockchain adoption; it’s the Digital Wild West, where the pioneers are tossing stuff against the wall to see what sticks. The potential impact of blockchain on business is still in the realms of the futurists, but what is clear, is that it is a rapidly emerging, disruptive technology that could have profound impacts at a foundational level on a number of big business sectors including finance, insurance, manufacturing, utilities, property, the share market and more. Many businesses have a need for data, tracking, analysis, transactions, processing, transparency, privacy and security, all of which represent a great opportunity for blockchain applications.
Look long and hard at your business including around the periphery. Do some future dreaming to fantasise about what might be coming, and you might just see some blockchain in your crystal ball! Paddle hard now, and you could set yourself up to ride the next big tech wave.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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