Blockchain Demystified

Recently on a training event the question was once again asked. What is Blockchain?

Here's my primer on the topic.

Let’s face it. In this age of amazing advancement it’s hard for any new technology concept to stand out above the noise, let alone be universally touted as an honest-to-God bona fide revolution in technology. But Blockchain may actually be one, even though it currently resides in the ‘trough of disillusionment’ from an adoption perspective (just Google Gartner Hype Curve to understand that).

Blockchain is THE disruptive technology in the Fin Tech industry but its applications are in no way limited to this sector. In short, everyone is discussing how Blockchain applications could be applied to their industry.

“Blockchain technology continues to redefine not only how the exchange sector operates, but the global financial economy as a whole.”

– Bob Greifeld, Chief Executive of NASDAQ

We will see its immediate impact in the way funds are going to be transacted and monitored in the online realm. Sidechains, digital tracking, crypto-currency, smart assets, open source banking and Quantum Money are all terms that will come into the mix and stand shoulder-to-shoulder with this technology. I’m not going to delve into those right here, but I will clarify the basics.

So, what is Blockchain?

The text book answer -

“The Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”

(Dan Tapscott - Blockchain Revolution. 2016)

No, really - what is Blockchain?

Okay so think of the Blockchain process as taking a piece of valuable information (a picture, a spreadsheet, a financial transaction, a legal document, a song, a video file... in fact anything digital) and then splitting it and sharing it over a vast array of servers. What you have then is a huge distributed database which no one controls, and where there is no single centralised instance of the document itself (or picture, legal document, financial transaction....etc). However, when we require the document to be produced or a financial transaction to be verified, the millions of servers on the Blockchain will each pour forth their instance of the narrative regarding this valuable transaction (data, document...etc.) and then mesh it together to bear witness to a truth, or bring forth the item.

In this way, we get rid of the need for centralised banks and clearing houses for financial transactions (as an example), and it makes a hacker's job a nightmare as their is no one place to attack to download an asset.

This may still be a tricky concept for some to absorb, so I shall re-paint through a simple analogy.

Let's grab a coffee!

Imagine you are about to borrow some money from a friend. You might meet up in some high-street café under the ruse of a casual chat. Situations and predicaments are explained by one desperate party to the other. Kind words of consolation are given by the latter said party, and an agreement is reluctantly made.

(Note that all the relevant parties are present in the above picture... and also the two self-absorbed simpletons oblivious to the embarrassment and woes of the rest of the world, and more concerned with getting off with each other!)

The handshake between lender and borrower is effectively a contract of intent by both parties. It indicates that both of you understand the terms of the lending and the repayment schedule. This is effectively the same transaction that happens online, between you and Paypal or you and a mortgage lender. The problem here is that should either of you falter during any period within the transaction, there are only two parties involved – the two parties involved.

The resulting arguments and legal battles are dealt with through institutions, lawyers, and on the evidence put forward by the two parties. The most powerful argument (or party) will win.

Now think Blockchain, and imagine the expanded scenario.

The Network is the Witness

Imagine that everyone in the aforementioned coffee shop – nay, the entire high-street - was now asked, momentarily, to stop and bear witness to this agreement and to the exact time of the deal. They would all halt what they were doing, jot things down on a post-it note, and then go about their business again, after texting you their phone number. So should there be a problem at any point in the future, both parties could invoke the entire network of witnesses. The truth would become self-evident very quickly. Now think of numerous similar agreements happening in high-streets around the world, and that you are also asked to act as a witness to their transactions.

It would be a case where legal parties and financial institutions would not even be needed to oversee transactions anymore. There would be no cumbersome processing.

This would cut costs, increase efficiency and reduce friction in the world’s banking system.

No one can claim an agreement wasn’t understood or was unclear because the overwhelming evidence would be available and the network will come forward and vouch for the truth.

What are the Benefits?

The industry grapevine is currently going mad about Blockchain for obvious reasons.

Source: Dupress

The benefits are:

1) Blockchain discards the need for an over-arching central authority to clear transactions.

2) Authorisation is made by the millions of servers in the network, with no one machine in charge.

3) This means that it is as a system much more secure, faster and friction-less than what we currently have - making it much harder to hack.

4) The applications are only just starting to be explored.

5) Huge cost savings to be made.

Is it Being Applied Already?

Some of the largest corporate players in the world are already playing around with Blockchain. These include:

• Barclays
• US Federal reserve
• NASDAQ
• Goldman Sachs

But the applications are still unravelling and will extend beyond the traditional finance sector. The imminent areas of use will be

• Smart Contracts
• Digital Voting
• Online identity certificates
• Cloud Storage
• Entry identification into physical buildings and sites
• Digital Vehicle Passport for buying, leasing and renting cars

SO in conclusion, it's all happening with Blockchain. Us mere mortals (recruiters) need to sit tight, watch this space, and be ready for the boom as and when it happens.

Hope that helps.

See you soon on the events!

Ayub.

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