Everything You Ever Wanted to Know About Blockchain (and Several Things You Probably Didn’t)

As we slowly make our way towards the end of another year, there’s a buzz swirling around the financial services the likes of which we haven’t heard since details of the Christmas party were announced. It’s not a buzz about some spectacular cash injection or a revolutionary new act of parliament, but rather about a simple little system known as blockchain.

For all intents and purposes, blockchain is a way of accurately recording and documenting digital events in such a way that every new record is not only 100% correct, but which can never be tampered with or erased once entered.

Image source: Wikimedia Commons

With that being said, you’re probably starting to get some idea as to why it’s the talk of the industry right now. Yet for all the hype surrounding blockchain’s potential (not to mention its ‘til-death-do-us-part marriage to the controversial Bitcoin), it seems that many still aren’t exactly sure what it’s for, or even why many are so excited about it.

If that sounds anything like you, don’t worry. To help you understand a little bit more, here’s everything you ever wanted to know about blockchain, and several things you probably didn’t.

What does Blockchain have to do with Bitcoin?

Image source: Flickr Creative Commons

Whether you’re of the opinion that Bitcoin is going to revolutionise the global economy, or that it’s a dangerous fad that’s only going to die out once it’s finished being used for the purchasing of weapons, drugs, and other illegal items, few can argue that its primary function is inherently a good thing.

Indeed, at its heart, Bitcoin’s most valuable contribution to the economic process is the way it allows for absolute transparency for digital money exchanges between strangers, all without having to rely on little more than trust, either towards its other or some third-party authority.

What allows this to happen is blockchain, which creates a certain, certifiable record of every bitcoin transaction ever carried out, a record which can never be erased or altered, and which exists without any central authority being involved.

Is that all that it does?

Not at all. Whilst blockchain’s role in the growth of cryptocurrencies is set to stay, that’s only one small piece of the overall picture.

In an article on FusionWire (powered by Misys), journalist Alex Kwiatkowski notes that ‘several institutions are letting their imaginations run unleashed’ when it comes to exploring the potential uses of blockchain.

UBS for example, ‘has created a dedicated blockchain research facility, and is in the experimentation phase, working on 3 or 4 use cases,’ says Alex. He goes on to note that Santander InnoVentures investment fund has ‘internally identified 20 to 25 use cases where this [blockchain] technology can be deployed, including international money transfers, trade finance, syndicated lending, collateral management, and smart contracts (where computer protocols verify or enforce deals).’

What is the biggest benefit of Blockchain?

To put it bluntly, the greatest asset blockchain brings to the table is one we’ve already mentioned: the fact that by using it, there’s no longer a need to place such a huge amount of trust in a third party and have the good faith that what they’re telling you is both true and accurate.

Think about it: almost everything we do digitally relies on some external provider being honest and correct, everything from our banks providing an accurate statement to our Firewall telling us we’re well protected.

‘There’s always the risk that a single provider of information could lie, or simply be wrong,’ says Guardtime CEO Mike Gault in a July 2015 piece for Re/code. ‘That’s why Internet security is such a disaster today; we’re trusting sources that can be hacked, manipulated or compromised. And increasingly we’re trusting them with our most precious personal data and life events.’

Ultimately, blockchain makes this a thing of the pass by relying on a distributed consensus (that is, sharing each record across multiple parties) to create a completely accurate account of events which is impossible to compromise or even just get wrong.

And that’s just for starters. Used in conjunction with other emerging technologies, the blockchain system could well lead to a whole new way of financial recording, ultimately delivering on the very kind of economic revolution Bitcoin promised us in the beginning.