Financial Planning Blog

Blockchain is Coming Your way

Ted George posted this article on August 2nd, 2017

While you may have heard of Bitcoin, you might not know that its underlying technology is truly revolutionary. This technology is creating an ‘Internet of Value’ that is just as important as the better known ‘Internet of Things’ (IoT). You also may not realize that this technology, known as Blockchain, is being implemented in many different areas, both financial and non-financial.

What is Blockchain

Blockchain is a distributed recordkeeping technology. What that means is that by using encryption, chained blocks, and peer to peer (P2P) networks, each record is unhackable, verifiably trusted, and contains information about every other verified, trusted record in the decentralized, distributed ‘database’.

You are likely familiar with the concept of encrypting a document or message to prevent unauthorized access. With Blockchain, each block of information is ‘hashed’ using a strong encryption algorithm. This hash (i.e. the encrypted data of each block) is exactly the same length, so every block remains small and portable. By combining a private/public key encryption methodology, creation and editing is solely limited to the owner, who has the private key. Read access is possible by others through the public key. That is, once a private verifiable encryption ‘key’ is set up, one can safely create, store, and edit important information that can be viewed(‘read’), by others who have public access (the ‘public key’) without the chance of your information being hacked.

Consider a bitcoin transaction. The seller has a private key that allows them to initiate the transaction to sell some bitcoins. The bitcoin exchange will use the public key to verify that you own at least as many bitcoins as you are selling.

You may also be familiar with other P2P decentralized systems such as Skype, which uses the power of all the computers of a network to create a single working system. Blockchain similarly uses this P2P approach which includes a distributed, openly accessible replicable ledger, and a distributed database synchronization mechanism. The benefit of its decentralization means that there is a no single point of possible failure.

Blockchain also uses triple ledger entry bookkeeping in which every transaction has a verifiable mathematical receipt.

The final concept to understand is chaining. This idea combined with all the others is what makes this technology revolutionary. Each block of information contains its own content, as well as the hash – the encrypted information – of the previously created block. Think about this a minute. This means that every block contains the encrypted information of the previous block, and therefore every block contains information about every other previously created block!

Uses

Bitcoin, the first implementation of Blockchain, was created in 2008. Once the implication of this technology started to become understood, it quickly began being applied to other areas with the momentum growing tremendously over the last few years.

Here are a few areas being implemented now:

  • Large financial firms are spending billions of dollars developing the next generation of financial systems using Blockchain. This will solve many problems while reducing costs. It will be used for:
    • Quicker clearing of securities, commodities and currency transactions, reducing or eliminating fraud and errors.
    • Credit card transactions (or their equivalent), allowing them to clear in minutes rather than overnight.
    • Prevention of money laundering
    • Insurance
  • Smaller, poor countries in the Caribbean including Barbados, Triidad & Tobago and Haiti, have seen the exit of most large banks due to poor profits and high risks. The vacuum created has resulted in Bitcoin exchanges growing to take their place. Bitcoin transactions have grown significantly in these countries. Due to the lack of a significant banking presence, Bitcoin and other blockchain based currencies are expected to step in and soon become part of everyday life.
  • Electronic electricity markets
    • Enabling houses to generate and sell their own electricity fairly and easily
      • The Brooklyn Micro-Grid project is implementing this now
  • Property ownership records
    • Remove the need for the centralized title databases maintained at considerable effort and cost throughout the country and the world.
    • Access to all title information of any property in the system
    • Making it easy to verify ownership by removing the possibility of fraud. In the US this may remove the need for title insurance. In those countries in which property records are inconsistent and subject to fraud and corruption, a blockchain system may eliminate these problems.
    • Projects are in various state of implementation in Sweden, the Republic of Georgia and Chicago’s Cook County.

Other areas of potential future use include:

  • Online identities that are trusted and unchangeable will add a level of verifiability and trust to identities across many applications in areas such as banking, finance, social networking, P2P lodging, ride sharing, and other sharing economy applications.
  • Medical Recordkeeping. Access to trusted, verifiable health records of an individual.
  • Supply chain management
  • Government record keeping
  • Voting Systems
  • Data Storage
  • Cybersecurity across all online systems including IoT
  • A host of other areas in which the benefit of using Blockchain will be efficiency, cost reduction, identity management, fraud prevention, or reliability

Last Word

Blockchain technology is truly revolutionary. It will change the standard methods for recordkeeping and transactions across business and government sectors. While it may take 5 – 10 years for implementation to happen in some areas, it is sure to touch your lives directly in other areas very soon.