Blockchain technology, if applied with care, could reduce corruption, raise public accountability and increase the living standards for everyone.
In this article, I want to explain the seven basic ideas that power blockchain as a technology. But first, note that blockchain is not bitcoin. Bitcoin is an excellent implementation of blockchain. And the broader class of these is called cryptocurrency. Bitcoin is the best and most adopted cryptocurrency.
Blockchain, simply, is a register that keeps all your records. It is a distributed ledger. ‘Distributed’ because it is not on just one node (or a computer) but is spread across multiple nodes.
Its fundamental pillars are:
1. Privacy
All big companies sell our data. The only thing we get in return is a ‘terms & privacy agreement’ that we have signed on to use their services. But if a company is selling our personal data, we should get something in return; or they should not be able to sell it without our explicit permission. The power to sell (or not) should lie with the person whose data it is and not some entity whose service is being used. Basically, these products (Facebook, Google etc.) work because we use them. If we refuse to use them, their value proposition will not work.
With blockchain, instead of big corporations controlling our data, we can control it. Blockchain, as a technology, does not know who is using it. No one needs to provide an email, contact information or anything to download and run bitcoin software, for instance.
2. Security
This is something we need immediately. We are surrounded by credit card frauds, stolen passwords and other such cases. Blockchain is a distributed technology, so there is no central control and no one point of failure. Even if one node is compromised only that particular user may get affected and not everyone else on the blockchain.
3. Distributed Power
Since blockchain is a distributed system, its power does not vest in a single central authority. There are no intermediaries. No single party can shut down the system. Even if multiple people shut down the system, a blockchain network will still run. The energy cost (amount of electricity) involved in breaking a blockchain system will be very high.
4. Value or Incentives
In a blockchain system, every stakeholder has incentives aligned with them. The more effort you are ready to put into the system, the better the returns. Your reputation is very important, similar to how it works in the real world. But the way reputation is calculated is based on the actual work you have done in the system. Remember a blockchain system registers every transaction ever happened. And hence the reputation can be verified. In a blockchain economy, power is less concentrated. I am not sure as of yet if it can be completely decentralized or it is the right thing to build completely decentralized systems.
5. Rights
Enforcing intellectual property rights is a nightmare in the real world. Whether the music industry, pharma, technology or real estate, patents and intellectual property rights have always been a pain point.
In the blockchain economy using smart contracts, the rights can be enforced and if someone tries to outsmart the system, the system can freeze their assets and notify everyone in the blockchain about the inconsistency. As such it becomes relatively easy for authorities to manage such cases.
6. Network Integrity
The blockchain system is spread across multiple nodes. There is no single control centre. Every transaction ever made is recorded. This enforces integrity in the process itself. If someone wants to behave without integrity the cost of doing so is very high. It also solves the double-spending problem in virtual transactions. The same dollar cannot be used twice, which typically has been the problem with our banking systems. The blockchain solves the double-spending problem with consensus mechanisms (proof of work). In bitcoin, the blockchain system timestamps the first transaction (for a coin) and any further spend is rejected.
7. Inclusion
Blockchain, for the first time in history, gives an opportunity to include everyone. The economy of a country should work for everyone, and blockchain can make this happen.
Millions are still unbanked. People in developing countries cannot afford to have a minimum balance in their account or there is no bank in their vicinity. A blockchain-enabled banking system can empower people with mobile phones to get access to banking services with micropayments at extremely low costs. Their data on the blockchain can be used for verification hence reducing the cost for KYC (Know Your Customer). With a blockchain system in place funds distributed for financial aid in underdeveloped countries can be tracked down.
One of the best implementations of blockchain is the cryptocurrency bitcoin. Bitcoin is implemented using blockchain technology. Every transaction that has ever been carried out has been recorded and stamped by other nodes stating its validity. That transaction stays there, and anyone can view it.
Imagine you have a software that runs on top of a blockchain like Ethereum or any other. The system gives you incentives to use it. By use, I mean the more information you provide to this system, the better it works for you. The important part is you decide what you want to share. You can share your social profiles, your bank account details, answer questions that the system throws at you, the same will be verified by your social profiles.
This system then derives a reputation score from your social and economic factors, your actions and other attributes. Once you have used the system enough it will give you ratings based on your transactions. All your transactions are on the blockchain and you can view them. These collated ratings can be used to get access to funds, get utility connection, admission to colleges and other tasks. It is a form of eKYC totally based on what you have done. It does not require your proof of address, email, or phone numbers.
To implement such a system, we would need to build an ecosystem, and then integrate this reputation system with other businesses like banks, utility providers, schools and wallets. If someone has a bounced cheque, the reputation system gets the data from the bank and this information is registered in the blockchain.
The important challenge here will be to build an ecosystem that will accept these ratings and consistently provide this system with data to bring its ratings closer to reality. This will massively simplify the current processes. Users will be able to get quick loans based on their reputation ratings. The blockchain knows based on your transactions that your probability of repaying the loan is extremely. Since the system is using blockchain, security is embedded by design.
Blockchain as a technology has the potential to bring about a massive change. But like with any new concept, it has to be adopted and promoted from the highest levels. It is good to know that almost all big companies are investing heavily in blockchain tech. Even governments across the world have started the conversation around blockchain and are exploring ways to use it. The next step would be to develop the appropriate skills required to implement blockchain solutions.
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