By Manish Palaparthy-Oracle on Aug 18, 2016
It has been a rather long hiatus from my blog writing, but I am glad that I finally am back to doing one of my favorite most things, writing about technology innovations affecting businesses. That said, which are those Innovations I am talking about? A quick look at the Gartner Hype cycle 2016 tells us one thing very clearly, i.e., Blockchain is at its peak!!
So, why is blockchain at its peak? What does it really offer? Even the Reserve Bank of India, a central bank known for being conservative talks about blockchain in its Payments & Settlement systems vision statement 2018. Why does the RBI want to monitor and put a regulatory framework around a technology innovation that is not yet fully matured? The above reasons and the buzz around blockchain makes it a very interesting topic to write about. So here goes...
What is Blockchain?
Simply put, Blockchain is a distributed ledger. It is a trend that is a mashup of multiple technologies originally invented to support the digital currency "BitCoin". It is a shared ledger which keeps a historical record of all the transactions across multiple nodes, but bear in mind
Blockchain ≠ Bitcoin.
Bitcoin uses blockchain technology keep a consistent record of transactions. Blockchain is the clever innovation that Bitcoin used to avoid a Trusted Third Party i.e., a payments clearing house and transact on P2P basis.
Blockchain makes perfect sense for Bitcoin, but why blockchain for businesses?
What blockchain does is, it creates a trusted record of transactions without a need for centralized, trusted third party, example: A Clearance house. While Blockchain worked out very well for a crypto currency like Bitcoin, its uses cases and applicability goes beyond crypto currencies. It can apply to any number of parties who necessarily don't trust each other but need to transact with each other. With blockchain, since both the parties maintain the same copy of the ledger, the trust is inferred.
The "Trusted Third Party" (TTP), typically maintains a single ledger of the transactions. There are essentially 2 problems with this model.
- The TTP takes time, typically days
- They charge a small fee per transaction.
A distributed ledger can completely remove the need for the TTP, thereby taking only a few minutes utmost to record the transaction without any fee! That's what makes the Blockchain Disruptive.
Like all innovations, blockchain has its own challenges.
- Ensuring constant availability of the record: Everyone should have the copy of the record
- Ensuring all the transactions are legitimate: All transactions need to be digitally signed
- Ensuring that the record cannot be tampered with: Each record (transaction) is chained with the hash of the previous transaction. History of transaction cannot be rewritten
- Have a consistent sequence of transactions: On a global scale if transactions where to happen at the same time, the first one to solve a cryptographic puzzle gets to be first in the sequence of transactions. This is where the term "Mining" the blockchain comes from.
Given the immense potential for blockchain, where can it be put to use?
There are plenty of use cases and not just in payments or the Financial Services industry. The use cases range from smart contracts to proof of ownership of digital content. I particularly like the article from letstalkpayments below. It has a comprehensive list of the use cases and the startups working on them.
Blockchain is evolving into a ecosystem from being a technology
Bigchain DB, ethereum, Strato, ripple, eris, chain.com, coinalytics, and lastly hyperledger are just some of the players in the eco system. Hyperledger seems to be the most open framework that I have come across.
Exciting times ahead?
Gartner seems to agree, but hold on, bitcoin is the biggest user of blockchain technology till date and the largest volume transactions bitcoin handled in a single day is about 277K. That may seem like a lot, but even some of the smaller banks in India see similar volumes. Can blockchain really handle the scale of payment transactions that a commercial bank handles today all while chaining previous associated transactions? Does the blockchain have to be backed by a traditional database to scale? I would sure like to find out.