Blockchain Technology: What It Is, How It Works, and Why the Corporate World Finds It So Irresistible
For the past decade, we’ve all probably heard the words “blockchain” and “blockchain technology” one time too many, much like a broken jukebox that is hopelessly stuck in an endless loop.
And when the cryptocurrencies drastically declined in price last year, we all thought we saw the end of it. Yet companies like Google and Facebook still seem more than inclined to invest millions into blockchain research.
Why is that? To answer that question, we need to start from the very beginning.
What is а blockchain, exactly?
Essentially, it is a decentralised ledger tied to a specific token (bitcoin, ether, any other virtual coin you can think of) that acts as digital currency. However, unlike its real-life alternative, the digital ledger is not comprised of pages but instead of blocks, with each individual block holding information concerning multiple transactions.
One of the advantages of blockchain over traditional financial institutions is that it keeps a record of every transaction on the thousands of devices connected to the encrypted network. Another advantage is that the ledger signs each transaction cryptographically, which serves as proof that the person transferring the coins is their de-facto owner.
The cryptographic signature prevents a user from spending their coins twice, which allows for easier tracking of how the currency is being spent, and also prevents people from cheating or hacking the blockchain system.
Ethereum: the company that made blockchain flexible
Prior to the Ethereum startup, blockchain development mostly stayed within the confines of the cryptocurrency market. However, all this changed when in 2015 the company released its proprietary platform for creating smart contracts—the first step in making blockchain tech widely accessible to the public.
Of course, the people behind the Ethereum project didn’t miss out on the opportunity to create their own virtual currency, the Ether. Similar to Bitcoin, it is stored on a proprietary Ethereum blockchain and was initially used to fund their open-source platform—the platform that now many people use to create blockchain-based applications.
A look at blockchain technology beyond Bitcoin
With Bitcoin moving above the $7,000 range as of July 17th (see the bullish move in the 4-hour chart trend above), it’s the perfect time to be a cryptocurrency trader. And with JP Morgan, the Bank of England, Google, Facebook, and other influential companies investing money into blockchain software development, it’s an even better time to be a blockchain developer.
So, what can blockchain technology be used for besides virtual currencies?
Safer file storage
Some companies, such as the Storj startup, seek to repurpose the blockchain into a much safer alternative to today’s widespread cloud services. Unlike cloud-based servers, such networks are decentralised (just like the crypto chain) and store any given file in multiple locations, making hacking attempts incredibly difficult to pull off.
Initially created by Ethereum in 2015, smart contracts are software applications that can enforce an agreement without human interaction. For instance, you can create a contract and bet with a friend on who is going to win the next Britain’s Got Talent. Should you win the bet, the software will instantly transfer the pre-determined amount of virtual money to your account.
Faster stock trading
Many blockchain technology developers unanimously agree that blockchain-based algorithms can significantly enhance the speed at which stocks and other assets are being traded on the market. This is done by reducing the time it takes to process the transfer of asset ownership from several days down to mere minutes.
Knowing this, financial giants like JP Morgan and Goldman Sachs are now pouring over $60 million in an attempt to replace their outdated and cumbersome trading software with a lighting-fast, blockchain-based solution.
Facilitating peer-to-peer financing
If you ever borrowed a loan, you would know that your bank needs to first assess your credit score before deeming you worthy of its money—a tedious process that could take days. In the future, blockchain tech might be able to assess your credit rating without the bank’s active involvement, saving you time and potential frustration.
The same could be applied to traditional money transfers. Instead of using the bank as an intermediary, the blockchain could be set to transfer the money directly from one person to another. The digital ledger could even end up outgrowing traditional accounting services since it would enable a given organisation to receive concise and real-time reports of all their financial transactions, minus the bureaucracy.
Other blockchain applications
As strange as it may sound, some companies are currently using the technology to track diamonds via the Everledger platform, while others like GreenStream Networks Inc. ensure that cannabis farming is meeting all legal requirements. Slowly, but surely, engineers are also researching ways in which they could incorporate blockchain technology into the healthcare sector.
What does the future hold for blockchain?
Blockchain’s success in the years to come will mainly come down to people’s willingness to ignore the negative press surrounding it. Let us illustrate this point by asking you the following: what’s the very first thing that sprung to your mind when you read the title of this article? If you immediately thought of cryptocurrencies, you’re not alone—when asked, many would respond the same way you just did.
And herein lies the problem that many blockchain technology companies currently face. According to Joshua McKenty, head of Cloud Foundry at Pivotal, the collective stigma placed on Bitcoin and other virtual currencies by our society can significantly hinder any progress made in this technological field:
“[In the late 90s], [y]ou couldn’t talk about Napster [and P2P] and have it be a positive conversation. Bitcoin has done that to blockchain. It will take us time to recover what bitcoin has done to get to something that is really useful [with blockchain].”
But in the words of Talla CEO Rob May, all it takes is a few good examples of how blockchain tech can benefit society to turn this gloomy view upside-down:
“Right now, businesses are missing real blockchain opportunities and [are] instead throwing blockchain in places where it doesn’t belong. For example, they are trying to use it for smart contracts, and that stuff isn’t ready. They also try to use it for cases that require a lot of speed, and again blockchains aren’t ready.”
In the end, regardless if you believe that blockchain technology will be the ultimate disrupter or not, the truth is that blockchain will be here to stay. The question is—for how long? In the meantime, feel free to capitalise on the most successful usage of blockchain to date by creating a DFTrader demo account and giving the cryptocurrency market a try without the risk of losing any real money.