There’s been a new buzzword thrown around lately, you know the ones, usually in a title next to ‘future’ and ‘uberisation’. You may have seen it used on LinkedIn or heard it mentioned in a presentation at a conference, the word I’m talking about is blockchain.
Blockchain has been called everything from a revolution to an overhyped fad, but which is it and what is blockchain exactly?
What is blockchain?
Put very simply, blockchain is essentially a database that maintains a continuously growing list of records called blocks. These blocks are then shared with every party involved in a transaction, who then verify, clear and store the data in this block before linking it back to the preceding block, and creating a blockchain.
Blockchain was originally developed for the online currency Bitcoin back in 2008.
How does it work?
This is different from a normal set of accounts where the data is kept in one place, instead a blockchain stores transactions in many places at once, updates them all at the same time and is available to everyone involved in the network.
As all the blocks are linked, the contents can’t be changed without rewriting every single block in the chain, which can be quite large and is considered impossible to do. This means the information is protected from being changed or corrupted, meaning it is transparent and secure.
What can it be used for?
Blockchain can essentially be used to remove the ‘middleman’ of transactions that would strip time and costs from all different processes.
Morgan Stanley, for instance, says blockchain could strip billions of dollars of costs each year from financial markets, while improving security, speed and market visibility and reducing disputes and fraud.
Using blockchain can add another layer of trust to online purchases as everything is traced back through the chain, meaning a buyer can’t be tricked and know they are getting what they paid for.
What are the risks involved?
Ray Valdes, a vice-president and fellow at technology analyst Gartner, believes blockchain technology is approaching what Gartner calls “peak hype”, and that it will shortly enter a period of disillusionment as a result.
If you’re looking for examples of blockchain’s success, you may need to wait a while as there aren’t many insights into how it can work in a practical sense yet.
The main issue with blockchain is that we don’t have the processing power to handle the huge amounts of data that will be generated, currently Bitcoin (which uses blockchain) can only handle 7 transactions a second, compared to Visa’s 56,000.
Of course the issue of security and privacy is still also a large concern, with questions around the amount of information that will be shared with many different organisations.
How far away is blockchain?
Analysts have suggested it could be up to a decade before we start to see this kind of technology used in supply chains but they expect to see it used sooner in the finance sector, where it could roll out in 3-7 years.
There are currently a few blockchain projects in the works with the CSIRO and the Australian Treasury halfway through a review of the technology.
The ASX has undertaken a high profile blockchain project which could see post trade settlement go from trade date plus two days top almost instant.
So yes, blockchain is a great technology that potentially can change the way make transactions, but it is still in its infancy. We still don’t fully understand the impacts that blockchain technology can have and what implications will come with it.
Once we see some results from current projects we can make our minds up, until then blockchain is the latest and greatest buzzword.