The 30+ year old’s guide to blockchain

Heard of Blockchain? Isn’t it that Bitcoin cryptocurrency thing that you hear of the news that young people are making and then subsequently losing a fortune in? And any way why should I be interested in it? Sound familiar? Well this was me until not too long ago when a colleague was telling me about his son in his 20s that was trading cryptocurrency.

My colleague knowing I’m an ex-trader through the heady days of the Asian crisis and inception of the Euro was telling me about his concerns for his son and this got me thinking about cryptocurrency, and specific the technology used – Blockchain – and what made it different and exciting, and why I should start paying attention.

What is Blockchain?

According to Alicia Collins from Hubspot, “in simple terms blockchain is a ledger system that uses an open, distributed record to keep track of transactions — transactions could mean cryptocurrencies, medical information, voting or home records, and more.”

Transactions get packaged into blocks, and each block gets verified by other users in the system by completing a mathematical problem. Once a block gets verified, it cannot be altered and gets added to a chain of other permanent, previously verified blocks. The records held within these blocks form a blockchain, and the blockchain’s users all keep track of this record.

Let’s say I want to sell one of my eight fly fishing rods. I could use a platform like eBay, TradeMe, Gumtree or even Facebook to sell it. Such platforms provide a marketplace connecting sellers and buyers. The platform makes money by charging a fee.

However, if I could use blockchain technology I’d be able to cut out the middleman (the platform) and still have a safe, speedy and secure transaction with anyone, anywhere. No selling platform, no bank fees, no intermediary platform, no fees and no exchange rate.

So where does Bitcoin and cryptocurrencies fit in?

In 2008 (yes ten years ago!) Satoshi Nakamoto the founder of Bitcoin created the first blockchain. Because Bitcoin’s software is opensource others started using, adapting, developing, and then modifying it for different purposes. There then was a wave of different cryptocurrencies such as Litecoin, Ripple, Ether and Dogecoin.

The others started using blockchain for other purposes. Namecoin used blockchain to register .bit domain names as an alternative to the primary domain name management system (a favourite of the dark web). In 2013 Ethereum developed an alternative to the bitcoin blockchain code to expand the functionality.

How does it work?

Well it is complex – so for this article what you need to know is there are five key common principles that blockchains have in common.

• Blockchains are completely transparent. Any user can view any transaction from now until the end of time.

• All transactions get completed between individual users. Say goodbye to intermediaries.

• Even though blockchains are transparent, a user’s identity doesn’t have to be. All users are assigned a public address to use in place of a name during transactions.

• Because blockchains live online, we can use algorithms to automate future transactions — just like you automatically pay your mobile phone plan subscription every month.

• Once a block gets added to a blockchain, it’s there forever.

So, what are the benefits?

There are three main benefits of blockchain and this is the bit that should get everyone interested and perhaps excited about blockchain.

• Security – data transmitted using blockchain is inherently encrypted, it’s much more secure than the standard username-password security system. Also, decentralized data stored using blockchain makes it extremely difficult to hack into because no “single point of failure” exists.

It’s like saving pages of a book at multiple locations a page at a time – very difficult put the book back together. It is estimated a hacker would need to overwhelm 50% of the network in less time than it would take to create another block to infiltrate a blockchain.

There are also other security features such as hashes, public and private keys. Private keys are the real security and are made from sophisticated algorithms. Can private keys be hacked – yes but it would take the world’s most powerful computer something like 40,000,000,000,000,000,000,000,000,000,000,000 years to do so – I don’t think I need to worry too much.

• Smart Contracts – blockchain expert Matthew Howells-Barby says “One of the more immediate ways in which blockchain technology is going to impact SMBs is through smart contracts. Smart contracts facilitate the creation of trust less digital contracts that can be used for all kinds of application – something that has never been possible before without a third party being involved.

Imagine being able to create digital contracts with contractors that would automatically pay them once work has been completed to a satisfactory standard. This is one of the many applications that smart contracts offer.”

Smart contracts essentially uses blockchain to automate payments and transfers based on a predetermined set of conditions. Think no more late fees or spending a couple of hours doing the household bills!

• Speed and Efficiency – blockchain would eliminate multiple systems and third-party verification (like my fly fishing rod example). But in a commercial example think of purchasing steel from Europe – it takes time to confirm orders, validate payments, check terms, and arrange LCs. With blockchain this could be eliminated.

So where will blockchain be used?

• Payments and cryptocurrencies – the most widely currently used and known form of blockchain.

• Trade – Faster verification times, reduction or removal of exchange fees, and elimination of errors will make domestic and international trade easier than ever before.

• Crowdfunding – it has the potential to take crowdfunding as we know it a step further by eliminating the crowdfunding platforms.

• Property and Identity – protecting your identity is becoming more important. Being able to accurately verify your identity is essential to all online transactions, but the data you provide can be vulnerable to attacks. Blockchain’s decentralized ledger and unique user addresses make it difficult for hackers to obtain your sensitive information.

• Supply chain – In early 2017, Maersk, one of the world’s largest container shipment operators, joined forces with IBM to create a digital blockchain-based supply chain system. The goal: To create a faster and more secure and cost-effective way to trade goods internationally.

IBM stated, “The costs associated with trade documentation processing and administration are estimated to be up to one-fifth the actual physical transportation costs. A single vessel can carry thousands of shipments, and on top of the costs to move the paperwork, the documentation to support it can be delayed, lost or misplaced, leading to further complications.”

Talk about a logistical nightmare. With blockchain, all parties involved in the supply chain can access any necessary documents and view transportation events in real time. This transparency helps reduce shipment time, money, fraud, and errors — getting consumers the goods they need from around the world.

• Medical – Blockchain technology allows patients, insurers, and doctors to view and update medical records in a secure and timely fashion. Blockchain can also help in other areas like reducing Medicare fraud and centralising information from wide-reaching medical studies into a comprehensive database. Blockchain even makes it possible to pay for procedures based on outcomes instead of predetermined rates.

And so it goes – there are hundreds of potential uses – stock market trading, agricultural trading, superannuation, drivers licencing and car registration, buying concert tickets, electoral voting etc… However, there is a few more years until blockchain will be fully integrated into daily life – but get ready – it’s coming.

If you want to know about blockchain there will be an episode on my soon-to-be-released podcast series ‘Run Your Business Better’, where I will be talking to a 20-something year old Mitchell Travers who works at a Sydney-based blockchain development company.