Most people by now are familiar with Bitcoin. What they are less familiar with is the underlying technology that powers Bitcoin – the Blockchain. The blockchain, simply defined, is a digital, distributed ledger in which records can only be updated by a majority consensus, which once entered, cannot be deleted. A seemingly uninteresting concept to the everyday eye is quietly taking society by storm.
Having gained a negative reputation in the early days through its association with Bitcoin, the blockchain’s untapped potential is real. Due to its security advantages, the blockchain is gaining attention from some notable parties such as NYSE, UBS, IBM and most recently Overstock.com, to name a few. While the reasons for the recent attention vary, the common denominator is clear: they all see the potential.
Let’s look at several potential uses of the blockchain and how it can benefit various existing industries.
Blockchain as a Payment Rail
In today’s cross border payment industry, a typical payment takes three to five business days to settle and costs about $60 in wire fees plus 3-5 percent in foreign exchange (FX) fees (a concept most customers are unaware even exists). The experience of transferring money usually involves a customer going to the bank, filling out lengthy wire forms, paying an average of $35 and waiting to see a proof of transaction settlement appear in their bank statement.
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What the blockchain does is slash the transaction time in half by cutting out the intermediary banks, which usually take days to process and deduct fees for doing so. With the blockchain, the exchange happens in near real-time. This means that the only additional time a consumer may have to spend waiting for the funds to appear in their account depends entirely on their local bank.
Because the blockchain cuts out the intermediary banks (the middleman in cross-border payments) and bypasses the SWIFT system entirely when withdrawing money, there are no more wire or bene-deduct fees.
Transforming Recordkeeping with the Blockchain
The sky is the limit for the potential use of the blockchain. One of these major benefits is for contracts. Imagine having proof that an event occurred, without disclosing the details of the event itself. The Blockchain does just that. With what’s called a “distributed consensus”, a majority of miners (computer processes) have to agree that an event occurred and on the details of the event.
There is no “central authority” such as a bank which settles the transactions. Instead, a group of miners all over the world are paid to record transactions on the blockchain. Every time a block with transactions is created, a hash is generated. The hash is unique to each transaction and ensures that there’s no duplication of records. The blockchain hence provides the single “source of truth” for the transactions, as well as transparency by proving that the transaction took place, without revealing any details of the transaction.
Similar to the initial use of the internet in the late 1980’s before it became mainstream, the blockchain is now being explored, researched and further developed to understand its full potential. Once the full potential is realized, this technology can transform audits or revolutionize the way business contracts, health records, online trading and virtually any industry that relies on accurate recordkeeping works. We’ve only yet scratched the surface of a technology which upon maturity might very well become as big as the internet itself.