Those of you who know me might be surprised that I’m writing about technology. I’m typically very critical of it, especially when it gets in the way of human connection. However, I recently learned of a fast-rising technology that may have such a large impact on human trust and exchange that I think we absolutely have to talk about it.
Bitcoin – a virtual currency introduced in 2009 – has received a lot of media attention lately about its fluctuating price, which skyrocketed, plummeted, and rebounded within a few months. However, Bitcoin is actually just one application of a broader technology called blockchain, and in many ways the drama about Bitcoin has been distracting us from the much larger impact of blockchain.
I recently attended a “Lunch & Learn” on blockchain, presented by my colleague Dina Mainville (Commercial Director of Strategic Partnerships and Innovation at Info-Tech Research Group), in which I finally understood what exactly blockchain is. I found that you need a basic understanding of how the technology works in order to imagine its potential applications and implications. And that’s why I wrote this post: to provide a simple explanation of what blockchain is, how it works, and its current and future applications.
So, what is blockchain?
Usually when we exchange something valuable or confidential – money, property, medical records – we use a third party, like banks, governments, or lawyers to verify that it’s real. The problem with central authorities is that they can be easily hacked or corrupted, and they take advantage of their position to charge people fees for every transaction.
Blockchain is a way of bypassing that third party: it’s a digital platform not owned by a single person or organization, where people record their exchanges and get it verified by everyone else on the platform. It’s anonymous, permanent, free, and overwhelmingly secure and un-hackable. To understand this, let’s walk through how it works:
- A transaction gets encrypted using cryptography, making it anonymous and permanent.
- The transaction gets posted to a digital ledger (basically online bookkeeping).
- The authenticity of each transaction gets verified by “miners”, which are computers participating in the blockchain. The miners compete to solve a cryptographic puzzle (a math problem) where they’re looking for a specific number. The first miner to find that number wins, and is awarded a Bitcoin (if you’re using the Bitcoin-based blockchain). This is a protocol that was designed by the creators to incentivize verification.
- Every 10 minutes (or less, depending on the platform) a “block” is created, which is basically a list of the transactions that occurred in the last 10 minutes. All of the transactions in that block have been verified by a miner.
- The block is added to the last block that was created, which is attached to the previous one, and so on. Hence, there is a chain of blocks, or “blockchain”, which contains all of the transactions that have occurred since the beginning of the chain.
- The blockchain is online and each computer has a copy of it (it’s a “distributed ledger”), so no single person or organization controls it, and they can’t charge you fees. Each time a new block is verified, everyone’s copy of the blockchain is updated.
As mentioned earlier, a blockchain is very secure. Each block contains the identity of the previous block and next block (it’s “timestamped”), so if a bad party wanted to change the information of one block, they’d have to change the information of all the other blocks. And, by that time, other computers on the platform would notice that something’s wrong, and the change wouldn’t be verified. I was told you would need to coordinate 51 percent of all computers on the platform to make such a change. So, it’s practically impossible to hack a blockchain.
A wide variety of transactions can be recorded on a blockchain. Buying and selling things (financial transactions) is one obvious application; however, there are many others. Examples include tracking the history of a product (e.g., the location of your Amazon package), medical records, votes, remittances, and many more.
In essence, blockchain is a different way of establishing trust. Instead of relying on a third party, you use your peers – the community of people participating in the blockchain. This takes control over the exchange of resources out of the hands of big, powerful organizations, and places it in the hands of humanity at large.
However, it’s important to note that blockchain technology is still evolving; innovators across the globe are racing to develop applications, and governments are working on regulations. And that’s why now is the time for more people to learn about it and critically evaluate it, especially when it stands to have such a vast impact on human exchange. Below are some examples of applications of blockchain, as well as suggestions for further learning, largely drawn from Dina Mainville’s Lunch & Learn.
I mentioned previously that miners are rewarded a Bitcoin for verifying a block of transactions. Bitcoin has also become a currency – a state-less one. People can buy and sell things with it, or just hold onto it and get rich as the price of a Bitcoin rises, like we’ve seen in recent months.
Everledger is a global blockchain that enables you to track the lifecycle of valuable assets. It’s currently being used to track the history of diamonds to expose and eradicate blood diamonds and conflict zones.
Banking without a bank account
2.5 billion adults around the world don’t have access to a bank account, primarily in developing countries. This is a major obstacle to poverty alleviation. Blockchain can enable people to send, receive, and manage their money just like they would at a bank, but without a bank account and without the fees. It could similarly be used to send remittances for free, bypassing third parties like Western Union that make enormous amounts of money off the backs of hard-working people.
If you’re interested in blockchain in financial services, take a look at R3. It’s a global consortium of financial institutions investing in research and development in this area.
Many artists struggle to get a fair share of the value they create with their music. Record labels often own the rights to decide what can be done with an artist’s content, and illegal file sharing makes it hard for artists to get a return for their music. In the 1990s, a song with one million singles paid average royalties of $45,000; today, it’s $34. Ascribe is a blockchain that uses smart contracts to create a permanent, unbreakable link between the artist and their content. It still allows an artist to transfer, consign, or loan their work, but the content gets attributed to them alone.
Despite the progress made by going paperless, healthcare providers still struggle to make medical records accessible from any location when it’s needed. Systems are becoming more integrated at the provincial or state level, but there are significant security risks and privacy issues with centralizing them at the national level or beyond. A blockchain can connect fragmented systems to make medical records accessible to the doctors at your location. It can also enable patients to decide who they give permission to to access their records.
If you’re interested in blockchain in healthcare, take a look at GEM. It’s a global consortium of healthcare organizations working together to explore how blockchain can be used.
People often borrow money against their land. However, it’s not uncommon for people to lose their land title when they are displaced from their homes, such as during war or a natural disaster. Blockchain can be used to create a permanent and indisputable record of their land title so that it cannot be lost.
Governments are currently reluctant to adopt e-voting due to the security risks, despite the clear benefits of increasing accessibility and voter turnout. Followmyvote.com is a blockchain where citizens can securely vote online and verify it themselves, while also making it permanent and un-changeable. They do this by using a unique voter ID and private key (used specifically for blockchain), and by using webcams and government-issued ID to authenticate themselves.
Video about what blockchain means for our world:
Video explaining how blockchain technology works:
19 examples of industries that could be disrupted by blockchain:
Banking on Bitcoin – a documentary about Bitcoin currently on Netflix