Few technologies have been covered as extensively by media channels as blockchain. Its initial exposure was less focused on the technology itself, and more anchored in uses like cryptocurrencies and tokens. The numbers don’t lie: in early 2016, the total market capitalization of cryptocurrencies was 7.5 billion USD. Exactly 2 years later, at the beginning of 2018, it peaked at 813.9 billion USD. This incoming capital explosion lead to spectacular price spikes, and the resulting financial success stories ignited more interest in this new asset class. The growth was exponential and seemed unstoppable, but that sentiment changed later in 2018.
The Core of Blockchain Technology
For now, let’s not focus on the financial side of blockchain or cryptocurrencies, but instead take a closer look at the core of blockchain technology. The publication of Satoshi Nakamoto’s whitepaper, “Bitcoin: A Peer-to-Peer Electronic Cash System”, sparked a global interest in the technology and inspired people around the world to participate in the Bitcoin blockchain network. No marketing campaign, sales efforts or incentives were necessary: the technology in the whitepaper was so clear and attractive that it sold itself.
Satoshi’s whitepaper was the foundation of blockchain technology as we know it today. Was it a totally new technology back in 2008? Not really. All the individual components of the Bitcoin protocol were already available and used for many years. The combination and integration of all these individual components into one protocol was what made it revolutionary.
The Key Components of a Basic Blockchain
- A peer-to-peer network: In a P2P network, computers are connected to each other directly through the internet, without the use of a central server. The participants act as client and as server at the same time.
- Validity rules: A common set of rules that define a network e.g. what transactions are considered valid, how the ledger gets updated, etc.
- Encryption: The use of a variety of cryptographic techniques mainly based on mathematical theory and computer science practice. Can be used to ensure data confidentiality, integrity, and authenticity.
- A ledger: A list of transactions, bundled in blocks that are cryptographically linked.
- Consensus mechanism: Determines what transactions will be added to the blockchain ledger and in what order. As there is no central authority within a blockchain network to “take decisions”, decisions are made based on a specific consensus mechanism, a way of reaching an agreement within the network.
The combined use of these components sparked a wide variety of use cases related to transactions, that were previously only possible using “trusted” intermediaries, like banks or purchase platforms like eBay or Amazon. For the first time in history, people were given the ability to move a piece of data (which took the form of cryptocurrency in the case of Bitcoin) from one computer to another without having to worry about authenticity or double spending. Data can be trusted because it has been validated by the blockchain network.
Double Spending Problem
Imagine you took a picture and sent that picture to a friend. Unless, you altered it, there are now two copies of the exact same file in circulation. From this point forward, you have no control over the future destination or use of your picture; it can be copied multiple times and will become hard to prove that you originally took it. This might not be such a big problem for photos, but the same risk exists for identity, medical records, ownership titles etc.
Enterprise Use Cases for Blockchain - The Only Limiting Factor is Imagination
Listing potential use cases for blockchain is too restrictive and limiting; blockchain can be used in any environment where two elements are or should be present, i.e. trust and data. The benefits of blockchain can be found in its immutability, traceability, transparency, auditability and, proof of existence for data or transactions. If you use this as a base, the use cases are extremely broad; just think about the trust in data in your organization. What is this trust based on in the current (probably centralized) environment? What if the data that was presented to you could be trusted completely without the need for third party validation? The trust is in the network, in the data itself. This is what the value of blockchain and its use cases need to be built around. As a result of these capabilities, all processes related to data treatment will become faster and more efficient. Think about a mortgage underwriting process, and the quantity of data that is required to complete it. Each piece of data needs to be externally validated and confirmed, making progress extremely slow. This process would be streamlined tremendously if the data presented could be trusted as it is. The same principles apply to identity management and authentication.
We purposely did not cover the cryptocurrency and token side of blockchain; however, the use cases for tokenization and fractionalization are, like blockchain as a whole, limitless. Are you a business that is ready to see how blockchain can be used in your organization? Request a demo and we can discuss what you can accomplish through blockchain.