Blockchain is a simple concept but arduous to implement. It has the potential to radically revamp governance, money, agriculture and pretty much everything else especially in developing countries.
There are essentially five points that one needs to understand when they talk about blockchain:
- It is a digital ledger consisting of economic transactions that could be programmed to record anything and everything of value and not just financial transactions.
- Blockchain is immutable, i.e., to hack into a blockchain network, one would require whopping amounts of computational power.
- It is consensus-driven, every transaction occurring on the network is authentic and all participants agree on a consensus on the status of the ledger. Proof of Work, Proof of Stake and Proof of Capacity are some of the consensus algorithms used in a Blockchain.
- There exists a decentralized provenance in this system, which means, it is actually possible to track down the details of the production date, manufacturer and the batch of a vehicle if an automobile manufacturing system is converted into a ledger like Blockchain.
- Blockchain is going to impact us in the same way in the next 25 years as the internet did in the past 25.
The advent of every new technology creates and eradicates some predicaments. The internet did solve the problems related to information, distribution and communication but hasn’t been able to resolve trust and intermediary related problems.
Let’s talk about blockchain resolving these issues around the ambit of Banking. What is money? Economists do not define money as a tangible asset but an entry on a ledger.
Your money is debt on a bank’s balance sheet. Now a bank is an intermediary and centralized authority. Does being a centralized authority give them the rights to tamper with balance sheets? Some auditors wouldn’t let fabrications happen in the system, yet we had the Lehman crisis or the collapse of Washington Mutual or the recent PNB scam. Cryptocurrencies using blockchain can act as a stairway to replace Trust with Mathematics.
It would be unfair to claim that blockchain is a perfect, glitch-less technology as:
- Transactions involving Bitcoin, even though completely decentralized is difficult to scale and is not as fast as some of the e-wallets designed by banks.
- In an Ethereum blockchain, the smart contracts cannot be modified once it becomes active on an Ethereum network.
- To use the Ripple Consensus Network, companies have to comply with a number of regulatory obligations which only large financial institutions or businesses are capable of.
If we weigh the pros and cons of technology like Blockchain, it’s undoubtedly heftier on the former side.
Mr. Jaspreet Bindra, (ex-Chief Digital Officer at Mahindra group) is confident that blockchain is going to bring an “Honest to Goodness, Peer to Peer Economy.”
As far as I am concerned, it is a plea all the Bankers, Regulators and Governments of the world to
“Listen very hard,
The tune will come to you at last
Blockchain is certainly a Stairway to Heaven and not a Highway to Hell”