June 11, 2020
Blockchain technology. It’s the underlying technology that Bitcoin and all other digital currencies rely on in order to provide users with a decentralized, democratic platform for exchanging value in a peer-to-peer fashion.
The inventor of Bitcoin (Satoshi Nakamoto) and the community of developers who successfully worked together to launch the network’s genesis block certainly deserve a lot of credit for making blockchain technology and cryptocurrencies a reality. That said, digital currency is only one use case for the blockchain. The reality is, blockchain technology and other exciting decentralized tools like smart contracts are revolutionizing product and service offerings across many different industries and verticals.
Time and time again, learning that blockchain technology applies to so much more than cryptocurrency – ironically enough – inspires Canadians everywhere to buy Bitcoin in Canada and get in on the action. There are many other resources to consider in trying to learn about Bitcoin and other digital currencies specifically. In this post however, let’s focus more on the ways the blockchain is changing other aspects of our lives.
What is Blockchain Technology? What is a Blockchain?
A blockchain is essentially a decentralized database. Decentralization means there is no focal point of attack for hackers to expose. Instead, information stored on the database is secured by computers who validate data as genuine. In the world of digital currency, the data happens to be related to transactions and payment information. In a broader sense however, the data can literally be anything. It can be the deed to a house, the rights to a piece of land, the rights to a rare antique, or an agreement between two parties that stipulates all of the details of a service agreement.
A blockchain can be either public or private. Again, most digital currencies like Bitcoin exist on top of public blockchains. This means everyone can see the data stored on the blockchain and there is no special permission required to contribute to its development or access the information stored on it. In a private blockchain, a central authority or any number of constituents might have special administrative power over who can look at the details stored on the blockchain and what those individuals can access. Some digital currency blockchains, like Ripple, allow partial access to the public while at the same time maintaining ownership of the blockchain as a private entity.
Let’s explore some more specific use cases for blockchains and how public and permission blockchains differ from one another in real-world scenarios.
XRP, Ripple and Central Banks
The Ripple cryptocurrency is represented by the XRP token. Anybody can own the token and profit from its price appreciation. In that sense, Ripple is a publicly funded project. However, the token and the blockchain that facilitates the exchange of its value is owned by a private company called Ripple Labs. Public blockchains that host cryptocurrencies allow the community of users to secure the network and benefit from its improvements or the price appreciation of its token or currency.
The team that owns Ripple however is interested in profiting privately. The goal of the project is to serve central banks, which is something cryptocurrency purists don’t like because serving central banks means serving a centralized authority, which in the minds of many libertarians means facilitating the privatization of value exchanges, not democratizing value. Ripple’s end game is to allow central banks to exchange large volumes of money at a fraction of the costs those banks are used to paying. The goal is to increase profit and put it into the pockets of business people and bankers, not hard-core libertarians.
Ethereum and Smart Contracts
Ethereum is built on a public blockchain and is the world’s second most valuable cryptocurrency according to market capitalization. It was developed by a team including Russian-Canadian programmer Vitalik Buterin.
The project introduced the world to the concept of the smart contract. A smart contract is a digital agreement between two parties that lives on a blockchain. In hosting a smart contract, the blockchain stores all the relevant data related to terms and conditions, and outcomes that render the contract fulfilled. With smart contracts, there is no need to use an intermediary or escrow service to guarantee a transaction.
Consider the way a company, like online auction website eBay, guarantees transactions using their payment service, PayPal. PayPal guarantees the product gets delivered to the buyer upon receipt of payment. The seller gets paid once they provide proof of shipping details to the buyer and the shipping company notifies PayPal that delivery is complete. In exchange for facilitating all of this, PayPal and eBay charges as much as 15% in selling fees, and also charge the buyer for withdrawing money into their bank account. Transactions like these occurring on a public blockchain using a smart contract mean fees can amount to mere pennies, because there is no central authority or profiteer taking a cut.
Other Use Cases for Blockchains
As mentioned, blockchain technology doesn’t just store data related to monetary value. There are many other reasons to use it. The space industry will one day be able to use satellites above the atmosphere as nodes for storing or validating information. The industry will also be able to store data related to energy consumption and construction details related to projects orbiting our planet.
IBM already uses blockchain technology to store data related to every aspect of its global supply chain. This allows the company to track the shipment and servicing of every aspect of its business on a permissioned decentralized database that gives key stakeholders access to all of the relevant information they need to do their work.
Blockchain technology is also being used in artificial intelligence as a way of storing machine learning data in a secure fashion. It’s exactly what allows an artificial intelligence robot like Sophia to carry on a detailed conversation with Hollywood actor Will Smith during a dinner date. It also gives her inventors insight into how fast she’s learning and ensures that malicious hackers aren’t manipulating her progress in any way.
The Future of the Blockchain
The number of use cases for the blockchain are virtually limitless. As long as data needs to be secured, stored or quickly transmitted to another party, using the blockchain as a part of the solution is always a possibility. As the world of technology and cryptocurrency continues to evolve, so will broader use cases for blockchains.
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