Not sure what ‘blockchain’ is? Or you have heard about it, but don’t know what it could mean for your business? Don’t worry, you’re not alone. However, it’s very likely that over the coming years it’ll be a fundamental part of many industries, so here’s a quick guide to what blockchain is, what it can be used for, and why it’s here to stay.
So, what is blockchain?
Essentially, a blockchain is a digital ledger that records transactions, but with one key difference to traditional ledgers – it’s a peer to peer system where transactions take place directly between two parties with no intermediary.
To get a little more technical, what happens broadly is that transactions are grouped together in a “block” and transmitted to a network of computers. From here it is verified, then the completed block is added to the existing chain of blocks, and a new block is generated.
The benefits of blockchain
As this information is hosted by hundreds of computers simultaneously, it’s accessible to anyone, a completely transparent system, and publically verifiable. However, the principal benefit of blockchain is security. There is no centralised version of the information for a hacker to get into. Additionally, because each block is linked to the previous block, it would be all but impossible to alter any piece of information in one block as it would require overriding the entire network.
The future of blockchain
Blockchain was originally created back in 2008 as the public ledger for the cryptocurrency Bitcoin. For this reason, there have been some negative connotations around it, particularly around the black market and dark web. However, the potential of blockchain to transform business operating models in a wide range of industries and government departments is being increasingly recognised.
In fact, Australia is really on the front foot when it comes to blockchain, with the Government commissioning CSIRO’s Data61 to compile several reports on the technology. Treasurer Scott Morrison stated on the reports’ release that blockchain would deliver “significant productivity and efficiency gains” for the Australian economy.
So, just where could blockchain be used? Well, those in the know believe it could be used to for records management, identity management and financial markets transactions, to name just a few. The Data61 reports also identify how governments could use it to manage datasets, provide social security and automate tax collection. Which, of course, also has huge implications for the finance industry.
Impacts on the finance industry
There are already businesses using Bitcoin, with one 2015 report putting that figure at over 100,000. However, the possibilities go much further than new types of currencies. Many experts believe there is a huge amount of potential for blockchain technology to replace the traditional methods banks use to send money to each other, which could have big implications for payment systems in the future.
There’s still a long way to go though. Blockchain was never designed to replace the systems that currently drive the finance industry, so the current technology will need to be refined and enhanced to make it fit for purpose. And while security is one of the big advantages blockchain enjoys, issues around how this new technology will comply with tough regulations on money laundering and the like will still need to be resolved.
However, with the Government backing blockchain, and the fact that most of the major banks and financial institutions are already investigating and investing in the technology, blockchain looks like it’s here to stay.