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Blockchain Is Set to Streamline Markets and Transform Industries

business of blockchain
Illustration by Greg Mably

Business is built on trust. The seller needs to trust the buyer to pay for goods. The buyer needs to trust that the seller will deliver those goods, and that they have the right to sell them to begin with. Financial institutions must trust one another to settle transactions. Other examples abound. To create an environment of trust and accountability among organizations around the world, a vast network of intermediaries has sprung up. Navigating that trust network for each transaction takes time, costs money and can still leave some uncertainty of the other party.

What if a better solution that was comprehensive, transparent, immutable and available to all existed? Some believe it already exists, and its name is blockchain. “It can enable individuals or businesses to move, store and manage anything of value (e.g., money, financial assets, titles and deeds, properties, votes in an election), and they can do it peer to peer, securely and privately,” says Alex Tapscott, CEO and founder of Northwest Passage Ventures, and co-author of “Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World.”

“By driving transaction cost down between all parties and businesses, [blockchain is] going to have an impact on every industry. That means if you’re a business leader inside of an institution, you need to pay attention to this.”
—Alex Tapscott, CEO and founder of Northwest Passage Ventures

According to Tapscott, the development of blockchain is taking us from the internet of information to the internet of value. “By driving transaction cost down between all parties and businesses, it’s going to have an impact on every industry. That means if you’re a business leader inside of an institution, you need to pay attention to this.”

Blockchain 101

Initially developed to enable the cryptocurrency bitcoin, blockchain is an immutable electronic ledger that’s distributed across multiple devices. It’s specifically not a distributed database, which resides in one or more discrete locations. Although multiple users may have access, the database needs someone to own and maintain it. Also, notably, data can be written, changed and erased at any time without record.

In contrast, a blockchain is a decentralized construct. It consists of a chronological sequence (chain) of transactions (grouped into blocks) that are stored and updated on all of the devices in the blockchain. Using a cryptographic technique known as hashing, the software generates a unique identifier for each block based on its contents. This hash is then incorporated into the code that links that block to the next block, so that this identifier becomes a part of the blockchain. If the contents or order of the blocks are altered in any way, the hashes change.

This is important because before a device can access or write to the blockchain, it must demonstrate to the other devices on the blockchain that it has the correct hashes. If a device is trying to access the ledger without authorization, or if it’s trying to make illegal modifications to blocks in the chain, those activities will be detected.

The technology can detect and stop attempts at hacking and fraudulent entries. Just as important, it ensures that every device in the blockchain maintains a complete record of every transaction. This makes the process both transparent and comprehensive.

For an example of blockchain’s potential power, look no further than IBM Global Finance, which is a $44 billion business. At any given time, roughly $100 million in capital is tied up in disputes. Frequently, those disputes are over the digital equivalent of bookkeeping errors among divisions of the company. They are typically resolved, but the process takes an average of 40 days. In the meantime, the capital is parked rather than creating business value.

Kristin Lewotsky is a freelance technology writer based in Amherst, N.H.

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