« Personal computers in 1975, the Internet in 1993 and Bitcoin in 2014 » Marc Andreessen, VC author and thought leader.
Blockchain is the technology behind the well-known cryptocurrency: Bitcoin. However, its use is much broader than the bitcoin currency. Imagination is the only limit.
How can we define Blockchain and how does it work?
Blockchain is a broad, global distributed ledger running on millions of computers, and readable by anyone where anything of value (money, deeds, titles, music, IP, votes) is stored securely, and privately. Just like the internet,no one owns nor controls Blockchain. Blockchain can eliminate trusty middlemen such as banks, and governments because Blockchain itself ensures integrity and security among participants- thanks to mass collaboration, and a smart code.
How it works is quite simple. Every transaction is validated online by “miners” (case of a public Blockchain): a first miner finds out the mathematical solution of the puzzle (“proof of work”) and ultimately other miners have to validate the solution as well as checking if the spender has the right to do the transaction. Then the block is cryptographically added to the ledger, and miners are compensated for finding the solution. The transactions arecryptographically sealed, making them immutable. With this technology, we do not need trust between two parties to establish transactions.
So how this technology is going to disrupt many sectors?
Every time a third-party is involved to process a transaction, the Blockchain technology could replace it.
Financial industry:
Blockchain technology is going to disrupt the financial industry in terms oftransparency, efficiency, and increasing trust.
Currently financial market architecture is highly-centralized relying on many intermediaries. Markets are fragmented. When someone wants to be involved in a transaction such as the purchase of a financial asset, the process is long, and expensive. Several intermediaries are taking a commission from the purchase and sell.
With Blockchain, this issue could be solved. The process of buying a financial asset would be less costly because no third parties would be involved, and the process would be much quicker which would increase the efficiency of financial markets.
Is it really safe? As compared to a traditional organization, there is no longer a point of failure. Currently data is stored whether on computer servers or in the cloud. Think about the number of data theft scandals in the recent decades. (see here a list). With blockchains, data is recorded and broadcaster in a ledger which is centralized, non corruptible, and reliable.
Then is it a threat or an opportunity for financial institutions?
On the one hand, some businesses such as transfers are by nature threatened. Blockchain reduces the cost of money to almost nothing. If we think about the business of Western Union that is making profit on fees, and currency spreads it is a clear threat unless Western Union turns into a Blockchain company, and reinvents its business model. Blockchain reduces the friction making quicker transfer time for almost no fee.
Banks, and credit cards are also making money on fees, spreads, on money. As a result, their current business model is also clearly threatened.
On the other hand, Blockchain can represent for financial institutions such as banks a great opportunity to improve the efficiency of their process, andreduce costs. Currently financial intermediaries such as banks, and brokers are spending each year billions in transaction fees (between $65 et $80bn a year). As a result, Blockchain can be potentially positive resulting in huge savings. Major financial institutions created a consortium R3 (http://r3cev.com/) which aims to deliver advanced distributed ledger technologies to the global financial markets as well as defining the norms in the industry. Recently 4 major banks (UBS, Deutsche Bank, Santander and BNY Mellon) announced the creation of their own digital currency, a “utility settlement coin”. It is a major step toward mass acceptation.
Furthermore, we estimate that 2 billions of people are poorly served by financial institutions, therefore Blockchains, with simply a smartphone would permit them to trade more efficiently without the need to have a bank account.
Ecommerce
Ecommerce business has been booming since the last decade. Nevertheless, many people still express deservedly concerns about security, and privacy of the information they are sharing (credit card numbers, names, addresses). Blockchain can address these issues that continue to torment Internet commerce, and to make Ecommerce a safe marketplace.
However, the use of Blockchain can be far more than just financial transactions.
Smart contract
This is a digital agreement (program) between two or more parties that would automatically be executed according to underlying contractual rules (self-verifying and self-executing properties). The third party — the virtual agent — has the power to execute or enforce some terms of the agreement. It can for example control some amounts of cryptocurrency or execute other smart contract programs.
Smart contract can also refer to a smart legal contract. For instance, it can be used with some financial instruments (bonds, derivatives) making the process more automated and interactive.
Furthermore, the challenge is also to improve the speed of the technology to be able to handle billions of transactions in a short time.
Other Sectors that can be potentially disrupted
The Notary business is costly, and time consuming. Some companies have already created a Blockchain that aims to certify any documents. Instead of completing a house sale in front of a notary, it would be recorded in a public ledger, safely, and anonymously. Intellectual Property, Real Estate, andeven votes could be disrupted by Blockchain by providing trust and transparency- while removing intermediaries.
A major breakthrough against corruption and counterfeitingBlockchain could be a major tool by avoiding corruption, expropriation thanks to its unchangeable code. Moreover, one person would be able to easily track the authenticity of anything (drugs, products).
Internet was the first native digital medium for information.
Blockchain is now the first native digital medium for value.
We are moving up from a centralized system to a broadcast system, and that is a revolution.
