The “business” aspect of Blockchain has been lost on many people… taken up by the tide of “easy money” in the trading of Bitcoins.
The reality is that some are touting “Blockchain” as a transformative technology for business, which many business people would be best placed to learn about & examine.
This article is going to explain how to do this…
What Is Blockchain?
The “blockchain” is a type of database… specifically, a decentralized database.
This has never been possible before, mainly due to the lack of proliferation of mass computing devices (such as we have today with Windows systems and smartphones etc).
The way it works is to take “data” and store it on 100’s or 1000’s of servers (known as “nodes”). These nodes allow the data to be synchronized across the entire network, rather than keeping them as individual files or as single records in a central database.
Whilst the idea of decentralization has been around for a long time, the ability to “save” data to a number of different services at once. What hasn’t existed for that time is a single protocol to make this work. A very similar proposition to the early Internet… the concept was not new but its implementation/adoption was.
As with the young Internet, the key with Blockchain lies in its adoption & use value. I’ll explain this in a second — for now, I’ll just say that the future of Bitcoin relies on the type and quality of service which it can create.
To best explain how “Blockchain” works, it will be best for us to use an analogy. We always use the idea of a telephone directory…
The “standard” file systems of today are like the telephone directories of old. They are rigid, static and there is no accountability. If you imagine each “file” you have as being a standalone piece of data which has no version or other recorded information, you’ll begin to see the fragility of the majority of our computing systems.
In fact, one of the BIGGEST drawbacks in computer networks today is the ability to maintain & protect DATA INTEGRITY. This is not even the “security” layer of data… but how up to date and available that data is across a network. When using “traditional” systems, this data is kept on all sorts of machines (known as “silos”) which ultimately control access to the data, and thus whether it’s reliable and readable.
This type of system is not only inefficient but very risky. Most people don’t realize but storing data on a SINGLE system means that if any virus was able to penetrate it, the data could be compromised or even lost. Whilst a little bit off topic, the premise is very important – the data infrastructure with the modern computing landscape is not only outdated but can be potentially dangerous. This was a rather good explanation here.
The part “blockchain” plays in this comes in the form of how data can be kept up to date.
As mentioned, telephone directories of old are static and rigid. From a central provider, it’s like having a database where all of the records cannot be changed unless the owner says so. CNBC has an interesting article on student bypassing Wall Street using blockchain.
Blockchain basically removes the need for a central provider and changes each “record” into a “block” of data. This means that instead of having “files” on your system, you’ll have “chains” and “blocks” – of which the latter are able to be updated automatically from a myriad of shared network systems (known as “nodes”).
The importance of this cannot be overstated.
Imagine having an email system whereby your messages are not just stored on your email server, but 1000’s of other servers too. Obviously, they’ll be encrypted so only you can read them. On top of this, each time you “update” an email conversation with a new message, all it’s doing is adding another “block” to a “chain”, keeping file sizes minuscule and data integrity high.
Whilst I may not have explained it entirely simply enough, the premise is simple – blockchain should be considered na upgrade to data storage… allowing your computer to process and update ALL the data on your system as simply as possible.
Why Blockchain Exists
The main point to make is that the idea of blockchain is predominantly for the applications which could be built on top of it. This is where Bitcoin and Ethereum come in (which will be explained in a second).
The main thing you need to appreciate is that the premise of blockchain is being talked of as a “platform” in technology circles. A platform to a technologist basically means that it’s a way to build extra functionality “on top” of the core system. Even AWS wants a piece of this thing. Rather than having to design specific functionality, the developer is basically able to offer a completely unique system thanks to the infrastructure provided by the underlying technology.
People sometimes refer to “Windows” as a platform, as without it many of the GUI applications we enjoy would not be possible.
To take this example and apply it to Blockchain, it simply means that if you are looking at creating applications which utilize the decentralized nature of its database. Such applications as being able to keep a public financial transactions ledger, and being able to manage “smart” contracts are where the whole idea of “cryptocurrency” has come from. Find out about where to hold your Bitcoin here.
Cryptocurrency is NOT what you think.
It’s not a “coin” nor is it an actual currency.
It’s a file. Each “coin” that people have been buying is a type of file, stored on 100’s or even 1,000’s of systems (known as “nodes”). These files are encrypted with a particular algorithm (each algorithm is dependent on the type of “coin” you’re using), meaning that only you are able to decrypt the file and read the contents.
The importance of this is lost on most people, but what it means is that if you’re able to record financial transactions with these files… it could replace the idea of a “currency”. This takes some getting your head around, so let’s explain…
The Rise Of Crypto Currencies
Known as a “killer app”, cryptocurrencies are pieces of decentralized software designed to run entirely “on” blockchain technology.
In other words, they don’t have any central data providers – instead they have networks of 100’s or even 1000’s of servers (in the world of Bitcoin, these are called “miners”) which work day and night to process new transactions for the Bitcoin blockchain.
The way these services work is by providing a “blockchain” that is only accessible with a particular decryption algorithm. “Buying” a bitcoin/ethereum token gives you the ability to unlock one of these files, basically giving you the ability to manage the currency as if it were real.
The problem we have today is a discrepency in how people see “Bitcoin”, “Ethereum” and other “coins” moving forward. The coins themselves have almost no practical use value (known as “intrinsic value” to investors) beyond the ability to send them to other people.
The truth about the coins is that they are basically just public ledgers — systems which allow you to store information which would otherwise be placed in centralized data providers. In the case of the cryptocurrencies, these ledgers are there to store financial information.
However, that’s not really going to “make” a lot of money. That’s not what is going to reward the market which invested into it. There is no money in the actual “bitcoins” themsevles. The ONLY reason why they are popular is because someone discovered that you can actually “trade” them like a commodity on an open market… and when that happens, the finance crowd cannot resist. You can even invest in Bitcoin in Canada.
What It Means For Business…
Ultimately, a business thrives by providing a quality service.
It does not matter how that service is delivered – be it through a product or manually – but what does matter is how that service is consumed by the end user.
The main benefit of “crypto” currencies lies not in the technology but the ability for more people to transact in a much deeper way. In other words, the scope of marketplace that is opened as a result of “Bitcoin” or “Ethereum” will determine whether businesses will adapt to the new platform or not.
If we take the Internet (which many would argue the precursor to the future of the decentralized web), the main draw for people was the ability to buy new products & interact in new ways (which were simply not possible before it). People would “log on” to see how their old friends were doing, or buy designer clothes from eBay.
Bitcoin and Ethereum etc would need to replicate this model – focusing on the type of service that can be purchased / provided as a result of their decentralized structure.
The problem today is that so many people are focused on the “price” of Bitcoin, and even the Bitcoin/Ethereum technology itself t actually look what is really valuable – which is the ability they provide for people to actually connect in ways never before possible.
When this begins to happen (if it begins to happen), the nature of business could change forever – with new markets in many developing countries opening up for the first time.