BLOCKCHAIN – The Distributed Ledger
CA Vinod Kr. Sharma
Professor of Practice - Integrating Academic Scholarship with Practical Experience
“Set of technologies converging over a short period of time have the potential of sparking massive change DISRUPTING businesses across all industries and sectors.”
Being digital is no longer an advantage. It is a minimum prerequisite to enter a new market, launch a new product or build the foundations for a start-up. In the near future, the key success factors for any company would be to build services/products with technologies that offer personalized experiences, help to predict consumer behaviors and anticipate their desires.
SMAC technologies enabled businesses transition from e-business to digital business, improved the operations and helped companies get closer to their customer but have little potential in creating new business models that are built on customer-generated data (structured and unstructured created by mobile devices, wearable technology, sensors, and social media). It is the integration of SMAC - Social, Mobile, Analytics, and Cloud together that creates a competitive advantage and new business opportunities.
DARQ (Distributed Ledgers, Artificial Intelligence, Extended Reality, and Quantum Computing) is fast emerging as the new stack of tech for today’s world. DARQ is the new SMAC (Social, Mobile, Analytics, and Cloud).
The foundation that drives innovation paving the way for shifting technologies from SMAC (Social, Mobile, Analytics, and Cloud) to DARQ (Distributed Ledger, Artificial intelligence, Extended Reality, Quantum Computing) technologies rely on: TRUST, RESPONSIBILITY, PRIVACY, and SECURITY.
BLOCKCHAIN is one of the emerging technology based on the concepts of Distributed Ledgers that has the potential of driving innovation and flagging the way for DARQ technologies.
Blockchain technology has its foundations laid on TRUST, ACCOUNTABILITY, PRIVACY, and SECURITY.
Blockchain is “an open, distributed ledger that records transactions between two parties efficiently in a verifiable and permanent way.
A blockchain consists of a growing list of records known as blocks. These blocks are linked with each other using cryptography (Encrypting techniques). Each block contains a cryptographic hash of the previous block a timestamp, and transaction data.
By design, a blockchain is resilient to modification. It allows digital information to be distributed but not copied.
Blockchain technology was originally developed for the digital currency – Bitcoin but has emerged as the backbone of a new type of internet known as the INTERNET OF VALUE.
BLOCKCHAIN TECHNOLOGY
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.”
A blockchain is a time-stamped series of irreversible records of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) is secured and bound to each other using cryptographic principles (i.e. chain).
INDUSTRY DISRUPTING CAPABILITIES OF BLOCKCHAIN TECHNOLOGY
The blockchain network has no central authority (democratized system). The information is open for everyone to see in the network thereby making it transparent and everyone involved is accountable for their actions.
The blockchain technology runs on the principles of crypto-economics. Crypto economics is the study of design and description of the protocols that administer the production, distribution, and consumption of goods and services in a decentralized digital economy.
Crypto economics makes use of Cryptography and Hashing techniques.
PILLARS OF BLOCKCHAIN TECHNOLOGY
1. Decentralization (Fluid)
2. Transparency ( Visible)
3. Immutability (Unchangeable)
The blockchain uses a special kind of network called “peer-to-peer network”. A peer-to-peer network divides its entire workload amongst the participating nodes in a networked “peers”. There is no central server (authority) rather there are several distributed and decentralized nodes (peers). The peer-to-peer network enhances the speed of file sharing.
APPLICATIONS OF BLOCKCHAIN TECHNOLOGY
SMART CONTRACTS - Smart contracts are self-executing contracts with an auto enforceable set of code subject to fulfillment of conditions specified in the contract. A smart contract is a computer code running on top of a blockchain containing a set of rules under which the parties to that smart contract agree to interact with each other. If and when the pre-defined rules are met, the agreement is automatically enforced. The smart contract code facilitates, verifies, and enforces the negotiation of the performance of an agreement or transaction. It is the simplest form of decentralized automation. Smart Contracts helps in slashing Transactions Costs of Coordination & Enforcement.
For instance, a derivative could be paid out when a financial instrument meets a certain benchmark using blockchain technology and Bitcoin enabled automated payout.
SHARING ECONOMY – Blockchain technology by enabling peer-to-peer payments allows direct interaction between parties (decentralized). The blockchain technology cuts the middleman costs.
CROWDFUNDING – Crowdfunding initiatives like Kickstarter and Gofundme are doing the advance work for the emerging peer-to-peer economy. The popularity of these sites suggests people want to have a direct say in product development. Blockchain technology has the potential to be the leader in “a new paradigm of economic cooperation.”
GOVERNANCE - By making the Election results fully transparent and publicly accessible, distributed database technology could bring full transparency not only to elections but to any other kind of poll taking.
SUPPLY CHAIN AUDITING - Ethical claims made by the companies about their products can be validated. Distributed ledgers of blockchain technology provide an easy way to certify that the backstories for genuineness. Transparency comes with blockchain-based timestamping of a date and location.
FILE STORAGE - Distributing data throughout the network protects files from getting hacked or lost.
PROTECTION OF IP - Smart contracts using blockchain technology can protect copyright and automate the sale of creative works online, eliminating the risk of file copying and redistribution.
INTERNET OF THINGS – IoT is The network-controlled management of certain types of electronic devices. A combination of software, sensors, and the network that facilitates the exchange of data between objects and mechanisms resulting in increased system efficiency and improved cost of monitoring.
Neighborhood MICRO GRIDS – Blockchain technology enables the buying and selling of the renewable energy generated by neighborhood microgrids. When solar panels make excess energy it is redistributed automatically based smart contracts.
IDENTITY MANAGEMENT - Distributed ledgers of blockchain technology offer enhanced methods for proving who you are, along with the possibility to digitize personal documents. In the sharing economy, a good reputation is the most important condition for conducting transactions online.
The blockchain puts the responsibility back into your hands. You are responsible for what you store on the blockchain, and the transactions you administer.
AML and KYC - Anti-money laundering (AML) and know your customer (KYC) practices have a strong potential for being adapted to the blockchain. Currently, financial institutions perform a labor-intensive multi-step process for each new customer. KYC costs can be reduced through cross-institution client verification and at the same time increase monitoring and analysis effectiveness. BlockChain technologies using AML/KYC solutions involve analyzing transactions and those transactions identified as being suspicious are forwarded on to compliance officers.
DATA MANAGEMENT - In exchange for personal data people are using social media platforms for free. In the future with blockchain technology, users will have the ability to manage and sell the data generated by their online activity
LAND TITLE REGISTRATION –Blockchain applications can be very helpful in maintaining the property titles of all publically accessible record-keeping by making it more efficient.
Blockchain technology offers the highest degree of accountability and guarantees the validity of a transaction by recording it on a connected distributed system through a secure validation mechanism.
CONCLUDING REMARKS:
Blockchain is still an immature technology and is still away from feasibility at scale because of the difficulty of resolving the “coopetition” in establishing the common standards.
Blockchain is the most promising technology for the Internet of value as it provides anonymity, security, privacy, and transparency to all its users acting autonomously by sharing the common purpose and goals. Block chain’s technology short-term value will be largely in reducing cost but in the long run, it has the potential of creating transformative business models.
CA VINOD KR SHARMA
Professor – Finance
Faculty of Commerce & Management
Rama University