Blockchain technology appeared several years ago and immediately opened up new perspectives for data exchange. How does it work and does it have a future?
What Is Blockchain In Simple Terms?
Blockchain is a distributed database that contains information about all transactions carried out by system participants. Information is stored as a chain of blocks. Each of them contains a certain number of transactions.
About the expert: Artem Genkin, Doctor of Economics, professor, one of the key speakers of online meetings. With the authors of the Skillbox online university and the Alpina publishing group – New World, New Man.
The blockchain analogy is a necklace. Each bead is a “block” or record of an action. This necklace – or “chain” (chain) – cannot be destroyed. Thus, the blockchain is an indestructible digital record of actions. The reliability of this system has allowed it to be used to improve the efficiency of money transactions and information exchange among individuals, corporations and even the public sector.
The History Of The Concept Of “Blockchain.”
The term’s history began in 2008 when an anonymous person or a group of people hiding under the pseudonym Satoshi Nakamoto published an article that became the manifesto of this innovative technology. The article described its essential characteristics and the possibility of creating a decentralized system of monetary settlements.
There have been many versions of who could be the author of this manifesto in recent years. Some evidence is convincing in favor of his Russian-speaking origin. The first block was generated in 2009, and today there are more than 2 thousand types of crypto-instruments based on various modifications of the blockchain in the world.
How Is Blockchain Related To Bitcoin?
Bitcoin is historically the first and most famous application of blockchain technology. Transactions in it are transfers of funds between users’ wallets. Each participant has access to information about any of the transactions that have ever taken place on the blockchain since the first transfer in 2009.
As the first blockchain application, bitcoin contributed to the global growth in popularity of this technology and made the world aware of its benefits. But later, in the process of development based on the blockchain and its modifications, other cryptocurrencies appeared, as well as other forms of effective use of this technology not related to crypto-instruments.
Blockchain Applications: Cryptocurrency
The introduction of blockchain increases exchange speed, reduces time costs, and improves services’ quality, reliability, and availability. This increases transparency and reliability and reduces risks.
The main scope of blockchain is the crypto industry. But besides this, blockchain projects are used in the banking sector, financial services, payment services, the public sector (public services, real estate registries, notaries, electronic voting, etc.), transport and logistics, IoT, healthcare, intellectual property management, energy, etc. d.
In the crypto industry, blockchain has become the technological basis for issuing cryptocurrencies, a modern version of Hayek’s “private money”. At the same time, the largest of them, such as bitcoin and ether, have a global circulation.
Based on this technology, tokenization takes place. The issuance of tokens is a special form of securitization of assets based on investors’ massive and global demand. In this case, the cost reduction is much more significant than traditional financial markets’ procedures.
Blockchain Applications: Banking
Blockchain makes all processes in the banking industry safer, more reliable and more transparent. Money transfers, settlements in securities transactions, letters of credit, KYC compliance, the routine work of bank back offices – all these operations are now taking place with the introduction of this technology.
Blockchain can cut bank costs by up to 50%. This was announce back in 2017 by Morgan Stanley analysts. In their opinion, the blockchain could optimize the infrastructure, radically reduce costs, and provide the necessary increase in banks’ RoE (return on equity). Despite their inherent conservatism, many banks would be dangerous to underestimate the potential of this technology. Its widespread implementation may lead to the liquidation of some participants in the global financial system.
Blockchain Applications: Cybersecurity
Each node of the blockchain system stores copies of the entire database, and they are check against each other. This makes the system viable even in successful hacker attacks on its single nodes. Although blockchain applications offer anonymity, the technology can be use to attach real identities to cryptographic ones in a database.
A startup is known to have create a convenient way to securely enter data, track it and transfer property rights through a blockchain platform. This helps real estate firms: records management becomes more convenient, search time is reduce, and confidentiality and transparency are increase. Another case is the reputation system of Internet users, which accrues monetary rewards in the cryptocurrency ether based on reputation indicators.
Blockchain Applications: Identity Cards
Such IDs represent the transfer of personal data about a person to the blockchain, the creation of his digital profile. There is a large list of public services that can be accessed through the blockchain, and there are statistics from advanced blockchain countries (Estonia, some emirates of the UAE). The use of blockchain and blockchain-ID by an active citizen can become a common pattern of behavior already during the lifetime of the modern generation.
In recent decades, both in Russia and in the West, states have been actively looking for ways to optimize their administrative activities.
At the same time, no one removed the issue of privacy and information security from the plan – on the contrary, it will become a priority in the era of blockchain.
How Do Payment Instruments Work On The Blockchain?
There are at least two types of means of payment. First of all, these are traditional non-state cryptocurrencies, such as ether and bitcoin, which have a multi-billion dollar (if measured in “traditional” US fiat dollars) capitalization.
The second type – central bank cryptocurrencies – are often attempts by fiat state issuers to pour “new wine into old skins”: to present a new form of earning seigniorage, i.e., issuing state currency, as something trendy and progressive. Only a handful of SEC issuance projects to date provide for a truly decentralized nature of their issuance.
There are technological problems. First of all, scalability: today, many popular distributed ledger systems cannot process a large number of transactions, which leads to a slowdown in turnover and transaction processing in them.
Another disadvantage is the lack of privacy due to the quasi-anonymity of the blockchain. Some types of blockchain are potentially vulnerable to hacker attacks and the so-called “51% attacks” – when, in full accordance with the rules of the system, a coalition of users with great computer power can change the records in a particular blockchain. This process is similar to how the majority shareholder in a JSC takes control.
In addition, regulatory and legal risks and sometimes off-scale resource and energy intensity remain specific risks for the crypto-currency sector of the blockchain development company.
Market forecasts: the future of technology in Russia and abroad
The largest market players organized themselves into consortiums back in 2015-17. They have already implemented hundreds of experiments and tests with different types of blockchains.
The possession of this technology remains a pass to the elite club. Its diffusion into the “masses” of businessmen and consumers will not be instantaneous. The hype (and the flourishing of many fraudulent projects using crypto assets). Which we observed in 2017-2018, is unlikely to repeat. But there will be more and more successful blockchain implementations in various segments. Of the commercial and public sectors.
The convergence of ICO / STO with traditional IPOs will lead to transformation. And partial removal of unnecessary barriers in the stock market. The polarization of the attitude of various jurisdictions towards the technology and the phenomenon of blockchain-friendly states. And hence regulatory arbitrage – will continue for several more years. Giving way to global awareness of the benefits of this technology and its sighted acceptance by legislators.