Blockchain, the Beginning of the Financial and Security Revolution
Since the launch of the new banking system in the 19th century, the centralized financial system and the lack of possibility of carefully analyzing financial transactions and the possibility for...
Since the launch of the new banking system in the 19th century, the centralized financial system and the lack of possibility of carefully analyzing financial transactions and the possibility for tampering with bank data have been considered a serious problem. It cannot be denied that traditional banking and financial transfers, although having many advantages, have always had the possibility for financial corruption and money laundering due to the centralization of financial power in a main managing center. It seems that with the advent of Blockchain technology, banking systems are changing at high speed. Of course, it should be taken into account that although the advent of Blockchain technology was aimed at developing financial systems, its application has grown so much so today that no specific limitation can be regarded for it.
Blockchain technology is only ten years old; in fact, it was only ten years ago that this revolutionary technology was born! However, in this short amount of time, its impact has been equivalent to the impact of some of the most important innovations of the 20th century. However, before anything perhaps we need to know what Blockchain is and how it works so that we can discuss its advantages, how it should be used and its future.
Blockchain and How It Works
Blockchain is made up of the two words block and chain. In fact, this technology is a chain of blocks. Generally, Blockchain is a type of data registration and reporting system. Its difference with other systems is that the data stored on this type of system is shared among all members of the network and with the use of encryption the possibility of removing and manipulating the registered data is almost impossible.
Bitcoin was the first application of this technology and used Blockchain to store the information of users’ assets. If Blockchain were an operating system, Bitcoin would be the first software on this operating system. Any information can be stored on any block; from the crimes of a person to the account info of assets such as Bitcoin. In this technology, data are stored on blocks and are related to each other through chains. Next hash blocks include previous hash blocks, and in fact, data are constantly being confirmed. Hash is reached on each Blockchain with a special mathematical function that is specified by the developers. The smallest change in the information of a block will change its hash completely.
For example, if a character is added to the information of Swiss towns, hash block changes and thus other blocks will no longer be valid, and this is why this technology is called Blockchain or the chain of blocks.
If someone changes the content of a block and updates the hash of the next blocks, what will happen? This is possible, but the distribution in the Blockchain network needs to be considered. Blockchain data are not stored on a computer or a certain server. Any computer or system that gets connected to the network will receive a version of the Blockchain.
In fact, Blockchain technology is not a fundamental technology on its own, but it is the combination of hashing processes, collective distribution, and a number of other different technologies that have led to the formation of the idea of Blockchain. With the coming together of different technologies the concept of Blockchain technology is completely made up of three foundational and main technologies. None of these three technologies are new. However, their collaboration with each other forms a new technology.
The three principles of Blockchain technology are:
1. Encryption and the private key.
2. Distributed network and public ledger.
3. Rules and an incentive (usually financial) to persuade users to collaborate in confirming transactions, keeping their records and maintaining the security of the network.
The existence of a unique electronic signature for each transaction in Blockchain guarantees ownership for users, but only controlling ownership is not enough to maintaining the security of digital communications. Even though the problem of identity is solved with public and private keys and digital signature, the activity in Blockchain should be as free as it is safe and anyone should be allowed to make and confirm transactions. This is realized with a distributed network.
How Blockchain works exactly is very complex which requires an analysis on its own. As a simple user, to use the Blockchain technology, you do not need to know how it works. Just like using the internet you do not need to know how it works.
The Importance of Blockchain and Its Applications
Blockchain as a new solution has many applications and usually in any field a special and custom type of Blockchain is used. For example, the block of cryptocurrencies and the Blockchain used for tracing foodstuff are completely different in terms of how they work, but the main principle in them is the same. However, to understand better the importance of Blockchain, its relative advantage must be analyzed with respect to any similar system.
The advantage and the need for a distributed network is understood with a better example (if a tree falls). If a tree falls in a forest and we had recorded the moment of falling with thousands of cameras, we are certain and have visual proof that the tree has fallen, even if its details (how or why it happened) are not clear. Most of Blockchain’s value is that it has a large network. In this network, people who are technically called the validators are like people who have cameras, and record evidence and come to an agreement regarding them. However, in here, instead of a camera, the confirmation of evidence is based upon mathematics. In simple terms, the size of the network in a Blockchain is important for its security.
One of the most interesting features of Blockchain is processing power. In fact, the processing power in a Blockchain network can compete with the combined transaction power of hundreds of banks, and with the combination of encryption (private and public keys) with a distributed network, a very functional form of digital interactions becomes possible.
By elaborating the way Blockchain works and defining it, we can also enter the discussions about its future and capabilities. In fact, by understanding function, the importance of Blockchain becomes more clear. Blockchain is a very important technology that can increase security and proof of work in any financial, economic, social or even political ecosystem in an unbelievable way.
The issue of security and reliability is so important that even large food companies in the world such as Nestle use it to trace foodstuff, production date or the way source materials are mined. Sierra Leone is the first country in the world that has held an election with the help of Blockchain technology, and it can be said that the possibility of manipulation and fraud in the votes can lean toward zero with the help of Blockchain technology.
Blockchain and Banking
Bank and banking are among the most important markets in the world. Many of the financial, political and even cultural affairs in the world are tied to these very banking affairs and its varied services. However, on the one hand, the Blockchain technology has made a lot of traditional banking systems frightened.
Payment systems and banking services with the help of the virtual world and a variety of different software have experienced much growth. However, the launch of the decentralized system of Blockchain, through which there is no need for middlemen in financial trades, is making a huge revolution in the world. What does the elimination middlemen from transactions and trades mean? Are banks and financial services institutes afraid for no reason? Is the fear of Blockchain swallowing all the opportunities and statuses of todays’ banks an illusion?
This surely is not the case. The fear of traditional banks of the advent of a Blockchain that can without wasting any time and money turn into a connecting bridge between people is seemingly very logical. The truth is that banks are not fast enough in performing banking activities. This leads to different international markets not having enough speed for interactions and trades. Also, the middlemen and the need for decentralized systems that connect the sides of trade with each other with the help of a third party require a very high cost for trades. Therefore, the need for a decentralized system seems to be ideal.
Blockchain is one of the most important infrastructures that can organize economic activities. All the activities that take place between two people or companies in this platform are registered in detail and precisely. Therefore, the possibility of tracing each transaction is very simple. In such a network, there is no sign of central organizations and institutes to organize this whole thing. Therefore, each company and person should oversee his own activities. It seems that in this condition. The financial system of companies will also be revised, and a sort of self-regulation will take place in them. The activity of Blockchain should not be mistaken for cryptocurrency trades.
Transactions that take place using cryptocurrencies are a part of possible activities with the Blockchain platform. This infrastructure can be used in education, communication, politics, voting, and other different matters. In fact, anywhere that there is the talk of a free communication system, Blockchain can be used.
We cannot talk about the future of banking or Blockchain with details and offer predictions regarding them. However, it is obvious that both of them in order to survive and grow in the future will require the collaboration of one another. Many financial and Fintech companies are developing their services based on Blockchain, and this indicates the possibility of a collaboration taking place between banking and new decentralized technologies. Though we should pay attention to the fact that many of the world’s reputable banks are currently using or developing Blockchain technology to increase their security and the speed and capacity of transactions and processes. Bank of America is one of the largest U.S. banks developing an exclusive Blockchain system for financial transactions. From the other hand, this bank currently used this technology to increase the efficiency of its ATMs.
Blockchain and User Security
If we want to address the issue of security, Blockchain can connect millions of users across the world without the need for a middleman, and this means communications will have security without the need for overseeing from central organizations and institutes. It seems that Blockchain can prevent scams and frauds from taking place in different transactions and trades of users and prevent the data from being stolen on the internet.
Blockchain network is developed and designed in a way that there is no central overseeing involved in it. Any user present in the network can have a role in creating and storing the data. All users have a role in creating and confirming the data. Therefore, eliminating or tampering with the data will be impossible.
To destruct the Blockchain network and doing scams in it, hackers should destruct the data that is registered in the computer of each user. There are millions of computers and users, and this makes the possibility of fraud and scam lean toward zero. As a result, even if a huge number of computers are hacked, there will still be numerous other computers known as nodes in the network that hold the previous data. So, hacking the data in the Blockchain network is mostly impossible.
This complex structure leads to an increase in the possibility of protecting data in the virtual world considerably. Such an infrastructure is not only limited to financial matters. This communication structure can be used to register and preserve various data. Registering and preserving data on the Blockchain reduce the possibility of fraud from any data to be minimized.
Presence and living in the virtual world get more widespread by the day. Different aspects of technology are being developed, and their entrance to the lives of even ordinary people will create the need for a new form of data protection. On Blockchain, we are faced with a very wide network that is very difficult to steal or tamper with its data. Up to now, some companies have attempted moving their data centers to the Blockchain infrastructure, and this shows that other companies will soon join this network. In fact, the capacity of Blockchain for turning into the number one choice of companies and institutions is very high.
Such a system helps the chaotic world that is being exploited by superpowers in many different ways and provides the possibility of free space for everyone. With the help of Blockchain, many of the economic transactions that are under different sanctions are put aside. Free communications are a right that Blockchain will offer to anybody in any corner of the world, and it will provide further financial, political, and even cultural and social matters in an unlimited and borderless way.
Blockchain and Developing the Food Market
It was earlier mentioned that the food market is one of the largest industries in the world and is one of the most important concerns in the field of global health. Food, hygiene, and health industries are also looking to use Blockchain.
Due to the weakness in the health care system and the lack of proper planning in the field of hygiene and health, the speed of its growth and efficiency is not all that great. Though when we say it is not that great, we do mean the production of medicine and medical tools. However, we have an integrated network in mind through which using different services and amenities on a wide scale is possible for everyone.
By using Blockchain, we can create a network of data that are tamper-proof and have enough transparency. One of the main problems in the health care systems is the problem of transferring medical data and patients’ information from one part to another.
Given the existence of Blockchain, all parts of a medical system have access to a network where patients’ information and medical data have been registered in fully and completely without any change. Patients’ data and cases will be kept easily with the help of the Blockchain system, and access to them will be easier and faster.
In addition to organizations and hospitals, patients can also have access to the process of their cases being completed and follow up on them via Blockchain. As a result, many of the extra and bureaucratic organizational costs will no longer exist with this technology.
Yet, some Blockchain critics believe that this system lacks the needed efficiency in the field of hygiene and health, though most of these critiques are merely for trial versions. However, even the most pessimistic critics admit that with the development of Blockchain the increase in the efficiency of the hygiene and health management systems can be expected.
Blockchain and Change in the Social Infrastructures
Social networks are also moving towards Blockchain. Not much time has passed from the great enthusiasm that different social networks were met with. The world is completely interested in the capabilities that colorful networks such as Facebook and Instagram offer. The capacities of these networks is really high and interesting. Given the existence of such networks and in general the virtual network, communications have had unbelievable growth and infrastructures such as Google have impacted the entire world with their varied services. However, the story of colorful technologies does not end here. With the advent of Blockchain technology, communications are taking an entirely different form. We no longer need to be worried about users’ data being leaked from different social networks. There will no longer be the possibility of exploiting communication platforms and using users’ data for advertising and political purposes. However, how?
Ghost Talk is one of the modern technologies based on Blockchain that has entered the market and uses a decentralized payment platform for giving rewards and gifts to users. In fact, users that enjoy the services of this platform’s social messaging system will have access to some features and will be able to receive scores.
Unlike other social networks, Ghost Talk considers some rewards and scores for content creation, sharing and in general users’ activities on the network. These rewards and scores include token rewards and cryptocurrencies that are able to be stored on the Ghost Talk electronic wallet.
Ghost Talk gives much importance to content creation, and in the network that it has developed, improvement and advertisement are possible. It means that people, companies and especially small businesses can use this infrastructure for their advertisement and create content in it. Any content creation in this network will have benefits and rewards that can later be turned into token and cryptocurrency. What makes the future of Ghost Talk very bright in the mind of the very skilled experts and makes them look at Ghost Talk with optimism, is the precise strategy that it employs in its outlook. Among the suitable strategies of this service is the possibility of advertisement and content creation that offers a win-win scenario for all the beneficiaries and users.
Among the advantages of the advent of the development of different social networks such as Ghost Talk is preparing the basis for further growth and collaboration between cryptocurrencies. The acceptance of different cryptocurrencies as a tool for making transactions in these new infrastructures can make their market even hotter than before and give legitimacy to these cryptocurrencies. Currently, the capacity of cryptocurrencies and a network such Blockchain is no secret to anyone. Everybody knows that sooner or later we will see the ever more growth of these new technologies. However, what can facilitate the growth of these new technologies like a catalyzer, is more relationships among cryptocurrencies and different platforms. If the possibility of making transactions and doing activities with different cryptocurrencies in various platforms and networks is provided, we will see a heavier and hotter competition market from them.
The Importance of Blockchain
It should be expected that sooner or later many of the most important world’s industries will look at the Blockchain technology as a modern solution for financial, security, and information issues. The importance of Blockchain’s financial potential is so much so that the global economic forum expected in 2015 that until 2025 more than 10 percent of the global GDP will be stored based on Blockchain technology. On the other hand, it is expected that until ten years later more than one-third of the global health and hygiene industries will use the Blockchain network to protect their users and customers’ information. This growth will not only include companies in the field of manufacturing medicine, but it will also include information management systems of hospitals and medical centers. So it can be expected that in the third decade of the twenty-first century, Blockchain technology will become an inseparable part of different industries in the world.
All of these are directly related to large industries or even macro-economic or social policies. However, what are the direct advantages of Blockchain technology for mankind? Perhaps this question can be answered better by analyzing the advent of Blockchain in important social and economic fields.
Blockchain considerably increases the efficiency of registering any kind of data, and at the same time, the registered data are completely transparent and are subject to view by everyone. Since properties are among the things that the possibility of fraud is high in them and their registration process is very costly, this technology can be used to increase the efficiency of its function. So far a number of countries such as Russia, Honduras (2015), and Georgia (2017) have turned to Blockchain in registering properties.
Blockchain can be used to deploy a polling system. However, the most important and main difference in Blockchain poll with common polls is in the “validity of its data.” Since in Blockchain changing and tampering with data is not possible and if for example, 70 percent of people say that option one is better than option two, no one can change this 70 percent into 69 percent. While there is the possibility for fraud usual polling systems! Validating and avoiding fraud in electronic elections that are held using Blockchain are really interesting on their own.
Supply Chain Management
Currently, some startups have been created that work in the field of the supply chain. In order to manage the supply chain, Blockchain technology has traceability and efficiency advantages. Blockchain can be used to track the movement of goods, their source, and quality specifications. Therefore, they bring a new level of transparency with themselves. Also, simplifying processes such as transferring ownership, insurance, production process, and payment are among other advantages of using Blockchain.
Food fraud has turned into a prevalent problem in the global food industry. It is true that there is not a shared, global definition for food fraud, but it can generally be said that “any attempt to manipulate food, offering false advertisement through tags and adding unhealthy food supplements for financial gains, are within the definition of food fraud.”
Blockchain helps increase the transparency of the food supply chain. When a food item is transported, its related data are added on the Blockchain. This is repeated for the process of changing or adding new material to that food item, and as such, when the final item is exhibited on the store shelves, all the existing spots in the food chain related to that item are updated and completed. Data will be available evenly for the regulator and for consumers, and this provides a high level of transparency.
Educational institutes, universities, and schools can use Blockchain to store the data related to evaluation tests, registering and offering educational documents and licenses, confirming student exchange, and also science and technology transfer.
The sudden growth of Bitcoin and crypto markets was not for no reason and without merit. These currencies allow for fast, secure, and cheap money transfer all across the world. While there are financial service providers such as PayPal that perform international transactions, but they ask for much fee per each transaction. Other peer-to-peer payment methods usually have certain limitations. For example, spatial limitations and limitations in the least amount of money that can transferred. It is for this reason that businesses, much like regular users, are turning into using cryptocurrencies, not just because they are more secure, but also for providing freedom and the lack of central power in charge of accounts.
Smart contracts were first suggested by Ethereum. A smart contract is actually a programmable contract which is placed on Blockchain until the parties perform the considerations written in it. As soon as the considerations are performed, the aimed program will automatically run. For instance, a contract can be defined to send a specific amount of Bitcoin to a specific wallet in a specific day in the month (e.g., for paying a home rent). Smart contracts, too, like other existing transactions on the Blockchain, cannot be removed.
Using smart contracts, you can perform your considerations and transactions without the need for a middleman or a third party. This contract is, in fact, some computer codes which are stored in the Blockchain platform. Smart contracts include all information related to the contract terms and performing all the clauses of the contract is carried out automatically. By using these contracts, both parties of the contract are comfortable with the thought that they will get what they want.
In fact, the nature of Blockchain has been inspired from accounting, and one of the best applications of Blockchain is in this area too. Registered transactions via Blockchain effectively omit human errors and protect information from accidental manipulations. All the records should be confirmed each time it is transferred from a Blockchain node to the next one. In addition to accuracy, guaranteeing your records will be traceable like a high-level ongoing audit process.
Of course, the whole process of basic-level accounting becomes more efficient. Instead of keeping records separately, the businesses can have a shared unit registry. Financial information integrity of the company will be guaranteed.
Energy Distribution Network
In a similar way, today energy generation networks are directed by the centers, the centers which take control on energy distribution and manage it. However, the dramatic development of renewable energies like solar energy or even batteries improvement causes small local distribution networks coming about. Therefore, if you generate energy at your home or work, you can store it in the batteries and consume it whenever you need it. You can even sell it to your neighbors.
Such events can lead to maintaining energy and avoiding its loss. Since the more distance the energy goes, the more loss and charges it will bear. Through this method, there is no intermediary anymore, and the people can trade themselves. Presently, energy production companies are the trustable link between the user and his/her need (energy). Because they control the infrastructure, so they take their share.
Tapscott says that Blockchain can make a revolution in journalism too. For instance, for each story, news or article which is read, the reader can pay one-tenth of a penny (a hundredth of a dollar). As a result, the reader decides which text is more importance or valuable enough to be invested in and pays for it. From Tapscott’s point of view, it might be a way to cope with fake news against real and valuable news the journalists create. Of course in a more professional perspective, such a measure might be more in favor of popular authors, and it leads to disregarding important but less popular news.
In the medical industry where sometimes you notice the patients’ records manipulated, the physicians and hospital heads can store a file of the patients’ records with high security and offer it to the hospitals, therapy centers and even jurisdictions in case of necessity. It can cause lowering the risks and costs of data management besides increasing security of storing and transferring data.
The electronic medical records stored in the Blockchain will be made accessible and updated through biometry. Besides, it can provide the possibility of free access to the data related to the patients’ records and decreasing the burden of transferring records between various suppliers.
Currently, you use Dropbox or Gdrive to store files. The main problem in using these service providers is that you should trust them. The states can urge them to disclose your information. However, by using Blockchain technology, your information will be stored in the network with unique encryption. This very issue leads to lowering the charges. Even if you have extra space in your computer, you can rent it. Storj is a good case in point.
Manufacturing and Controlling Products
In the process of about 8% of the world exchanges, fake goods are sold to the customers; hence manufacturing and delivering goods and services have always been intermingled with the issues of quality and control and the manufacturers are frequently faced with careful verification and regulations-adaptation activities. This quality guarantee in manufacture industry imposes high and growing charges on the final consumer. Blockchain provides an opportunity to decrease cumulative charges resulting from controls in the supply chain. Through applying this surveillance technology in the supply chain, protecting the intellectual property of information and designs, supervising manufacture in accordance with designs, making sure about on-time payment, decreasing relying on third persons like banks, inspectors, attorneys, and even internal audits and decreasing middle managers are imaginable. So blockchain can revive manufacture and industry.
Now, most of your ownership records are stored in paper form, and it is possible to manipulate them. Since this technology uses computers, human errors will decrease. If a person manipulates the blocks’ information and alter the information, the hash will change, and this change causes breaking blocks’ sequence. Considering all these issues, no one can alter these blocks. Each alteration will not be hidden from everyone. Blockchain, as an extended public ledger, can do any registration better. Property registration can be a good example in this regard. Currently and through the traditional method, the procedure of property registration is very expensive, needs great human resources and is highly vulnerable to fraud.
Currently, some countries do property registration based on Blockchain. Honduras was the first government to start this innovation in 2015, though its current status is not clear. In this year, Georgia made a contract with Bitfury group in order to develop a Blockchain system to register property. According to an official report, Hernando Desoto, famous economist and ownership rights defender will be one of the consultants in this project. Lately, Sweden has also announced that it will use this system tentatively to register properties.
Internet of Things
According to Cisco, 50 billion devices will be connected to the internet till 2020. Given this number of devices which all create sending, receiving, and processing commands such as turning on, dialing and moving, the data accuracy in this route might cause unpredictable charges. Blockchain can be used to trace billions of connected devices, process trades and enable coordination between devices. This decentralized approach will remove the probability of network breaking down and create a more resistant ecosystem for the devices. Moreover, the applied encryption algorithm by Blockchain makes the customers’ data more private.
It is the very best application of Blockchain! Blockchain has proposed in the new concept and made a revolution in raising capital. ICO is a new way to raise capital; everyone can invest by it, wherever they are. When someone invests at your company, you should give him a receipt. ICO suggests digital assets, and you can give your receipt to the investor with created tokens. The tokens are stored in your Blockchain network. These tokens can be applied to use offered services from your company or even are exchanged with other tokens. In fact, tokens are a new generation of stocks of the companies which are offered in the safe Blockchain infrastructure.
What is your idea about a decentralized and encrypted registry? Alternatively, a digital identity? Blockchain technology gives solution to many authentication problems and can offer a unique, undeniable and safe identity. The methods which are being used today are based on registering information on an unsafe database. Using Blockchain technology, authentication is undeniable and is carried out based on digital signatures and according to the private key.
Criticism of Blockchain
Taking important and clear features of Blockchain technology, it always has faced some criticisms. It includes a wide variety of experts’ opinions; however, it can be said that one of the most important criticisms of Blockchain is its application in financial fields. Wei Kai, chairman of Blockchain research section in China Information and Communication Technology Academy believes that the companies haven’t succeeded in solving three major financial problems of this technology technically although he has acknowledged Blockchain ability to make an evolution in different industries. This Chinese researcher thinks that Blockchain society should still work on cases such as information privacy, applicability and also Blockchain ability to be integrated with the current economic system. One of the other problems is to make surveillance approaches coordination between various judicial fields across the world.
Today Blockchain faces with a bigger problem called scalability. The fastest property-dependent Blockchain systems cannot manage more than a few thousand financial transactions in a second. This capacity of transactions will maximally reach 25,000 transactions a second (this figure is somehow similar to the current capacity of VISA). Depository Trust and Clearing Corporation, in its 2018 report, points that each new technology should have the capacity to develop to two or three times more than its current maximum capacity and also it should be able to do 50,000 transactions a second. In order to make predictable the future physical limitations ahead of transfer speed for an extensive volume of information, there is no way for the financial system to be able to use it to evade relying on centralized transparency and settlement systems.
The Future Soon to Come
We can hope that the future of Blockchain is bright and predictable. There is almost no doubt that this technology will be active in all areas of the global industry until the next decade. It is because of its decentralized and reliable and of course controllable Blockchain ecosystem more than any other thing. However, this point should be taken into account that the development of Blockchain technology in financial and banking fields follow judicial rules of different countries and predicting it is very difficult. In fact, financial rules of the countries are continuously changing and given being young Blockchain technology we cannot be sure about the countries around the world to come to terms about financial transfers.
Considering all these issues, Blockchain will make important changes in our society, the changes many of which are not even predictable, but we can be hopeful that this technology can reduce the problems the societies are engaged with.