The explosive growth of Bitcoin has made headlines in both the financial and mainstream press, with stories of impending collapse so far yet to materialize. The real story, however, is bigger than Bitcoin and is about the potential of blockchain, the underlying technology that Bitcoin runs on.
In essence, blockchain is a decentralized ledger that gives a list of all transactions in a peer-to-peer network. We will break this down in less abstract terms in the following key benefits, but, essentially, it is a system that eclipses the current one through superior transparency, access, speed and security.
The potential for development in blockchain some are comparing to the dawn of the internet, with pundits calling blockchain the “internet of money”. Big claim, right? Read on to find out why.
Citizen: a blockchain system for frictionless authentication and an Angels Den business
1.) No third parties – the decentralisation of information
If blockchain had one USP, this would be it. With blockchain, the need for verification from a centralised authority (like a bank) is eliminated, allowing for pure peer-to-peer transactions.
This decentralisation means that information does not exist in one place, and is instead dispersed and distributed across a network. Crucially, this means there is no single point of failure throughout the system. If a failure occurs in any part of the network, the rest of the system will continue to operate. This works in contrast to current business systems, which operate using a third-party ledger that only the third party has sight and control over – creating opportunity for delays and discrepancies.
2.) Speed of exchange and reduced transaction costs
Blockchain allows parties to deal directly with each other, and so reduces time and cost-consuming middlemen. So, for instance, the traditional business-to-customer payment model – which includes 7 steps, takes an average of 3-4 days to complete and charges 2-6% transaction fee – becomes obsolete.
With the supply chain streamlined, blockchain has the capability to provide near-instant settlements. The time and cost savings here can be huge, especially if moving large sums of money, like in inter-bank settlements where trillions of pounds are being transferred. Blockchain also has the potential to make a big difference in the world of currency exchange, as the number of transactions and the transactions costs are dramatically reduced.
3.) Transparency and accountability = greater trust
Although blockchain can be either a public system, like Bitcoin, or a private system, the common characteristic of blockchain is that everyone in a network can be given visibility of the transactions and has access to one “true” ledger. This creates a valuable transparency and clear accountability which is absent in current ledger systems.
4.) Robust security from hackers
Its sophisticated architecture and advanced cryptography have given blockchain a strong security reputation. It is almost impossible to amend anything in blockchain without record, and even if a node in the system is compromised the system would continue to operate throughout the network.
Two main cryptographic features of Bitcoin’s blockchain are consensus protocol: which validates transactions and prevents “forks” in the chain through cryptographic algorithms; and private keys: which are assigned to each user, and without which transactions cannot be made. See here for more detail on these features.
Blockchain businesses pitching at our Blockchain Special event last week
5.) Promising potential in finance and beyond
Due to blockchain’s applications in cryptocurrency it has been primarily associated with the finance world – but there is exciting potential beyond.
Blockchain doesn’t have to transfer money: it can store information of any kind – whether that’s medical records, intellectual property details, asset data, etc. The potential scale and breadth of use is staggering… and we are only at the start.
At our Blockchain Special event last week we showcased promising blockchain businesses including Citizen and Lynq. Get in touch with our Tech Club Manager Chris to find out about investment opportunities.