Blockchain might be an obscure technology at the moment, but it is poised to become as vital as the internet

Blockchain has created a way to have a trusted transaction between two people who do not trust each other without the need to involve a trusted third-party.


With Bitcoin reaching a valuation of as much as $10,000 in recent days, it is becoming increasingly important to understand why exactly one should be excited about cryptocurrencies and blockchain. Bitcoin is a cryptocurrency that runs on top of blockchain, but the more interesting of the two is blockchain, even though it is bitcoin that gets more attention. Blockchain is perhaps even more disruptive to the financial sector, and banking and investment service providers already think of it as a more disruptive technology than artificial intelligence. Police and military security agencies around the world are looking at blockchain as a potential solution for data security challenges. Major energy companies are also looking at blockchain to help significantly cut costs when it comes to the trade of oil. Major FMCG corporations, including Unilever and Nestle are exploring blockchain based options for supply chain improvements.

 Blockchain might be an obscure technology at the moment, but it is poised to become as vital as the internet

Bitcoin. Image: Reuters

To be able to understand this, we first need to understand why is blockchain suddenly so important in this day and age when people did not require an internet connection about two decades ago. According to a report by Newco Shift, Andreas Antonopoulos, an expert on bitcoin and blockchain answers whether all the hype revolving around the new technology is justified or not.

While bitcoin, a digital currency and payment network was introduced in 2009, blockchain refers to the underlying technology that was developed by the inventor of bitcoin. To make it even simpler, he defines blockchain as bitcoin's ledger that records all the transactions that have ever happened in the database distributed around the world. While bitcoin is one of the first such technologies to have emerged there have been thousands of systems built using blockchain and similar systems. A more general term for blockchain is distributed ledger technology, which is an evolution of the general ledger, which has been the foundation of account keeping.

As the author of the book, 'Mastering Bitcoin and The Internet of Money', Andreas Antonopoulos says,"The new systems have created a way to have a trusted transaction between two people who do not trust each other without the need to involve a trusted third-party. Previously, two people who could not trust each other could only transact through a trusted third-party, like a bank, or use government-supported methods of transaction like cash, etc. Bitcoin allows people to transact without trusting each other and/or trusting third-party."

Bitcoin is a global currency, he explains. One which is not created or controlled by a government, nor by a bank. All an individual requires is an internet-based application. Talking about global currencies, another widely accepted currency has always been gold, but is bitcoin similar to gold in any such way? Antonopoulos feels so. The only difference he states is that gold is more broadly accepted and understood, an advantage it enjoys over bitcoin which is yet to attain that level of trust with the masses.

Talking about what the future may hold for bitcoin and blockchain protocols, he claims to be most excited to see how bitcoin evolves into a new class of transactions which is free of Banks and other stakeholders. "You’ll see a lot of applications that simply cannot be done with the existing payments tech," he states. "At that point, bitcoin/blockchain will become extremely interesting in the existing developed world, but it’ll take time for the technology to mature," he adds.

To answer the question of why bitcoin and blockchain protocols must receive as much attention as they are beginning to garner, he provides perspective to how nascent the protocols are in terms of development. Antonopoulos says, "With bitcoin and blockchain we’re in the same place the internet was in 1990 or 1993. The real serious “killer” app — inflection point — has not been reached. We’re in the email phase, and we don’t have the web yet. Everyone needs to have gone through building that basic capability phase first, so now it’s just currency, just payments."

The tipping point may be here any time soon. Closer back home, SBI is set to start using blockchain for smart contracts from this month. The Andhra Pradesh government is testing out using blockchain based technologies for administrative purposes. According to IBM executives, the Indian public sector stands to benefit the most from blockchain based technologies.

 


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