In 2008, shortly after the Global Financial Crisis, an unknown entity entered the finance sector. Satoshi Nakamoto released a white paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System. This paper introduced the world to Bitcoin and outlined the conceptual and technical details of a payment system that would allow individuals to send and receive payments without involving any intermediary financial institutions. What began as an interesting concept has evolved into a progressive finance modality, the merits of which remain open-ended.
Bitcoin, a digital cryptocurrency made up of processed data blocks used for online purchases, is underpinned by technology called ‘Blockchain.’ This does not mean Bitcoin is Blockchain, but rather, a use thereof. The most simplistic explanation of Blockchain is that it is a ledger (i.e. records of transactions or events) which is decentralised (not stored on a central database) and is made secure through cryptography (the art of writing or solving codes). Think of Blockchain as the internet and Bitcoin as Paypal. Paypal uses the internet to fulfil its purpose of facilitating online payments, and so does Bitcoin. Paypal facilitates the process of storing and quickly retrieving a user’s personal banking details to pay a vendor online. This effectively adds an intermediary to the process, simplifying the payment process for the user. Bitcoin on the other hand, replaces the entire chain of intermediaries, allowing the payment process to be truly peer-to-peer whilst being completely secure (no one has been able to hack the Bitcoin Blockchain to this day).
You might think that this process then limits the applicability of Blockchain to financial transactions, which is a reasonable assumption, but if you think about what a ‘transaction’ is, it’s simply an exchange of valuable information between participants within a network. The transfer in this context is financial in nature, but in theory we could substitute the ‘financial’ placeholder with just about anything: proving your identity, verifying ownership of an asset, assuring a retail shopper of a product’s provenance and facilitating communications between a network of autonomous devices. The list of possible uses is far-reaching.
It is interesting to note that all the current use cases for Blockchain already exist. When Henry Ford released the Model-T, we had horses. They solved the problem of getting you from your house to the bar quite well, and until the innovation of automotive cars, horses probably did a better job at returning you to your home after an hour at the bar. However, without cars, we would likely have had to keep cities smaller and more centralised. This proves that Blockchain is not redundant. Though this technology is used in existing applications, its functioning capabilities supersede those of traditional innovations before it, allowing no room for redundancy but providing plenty of innovation to be anticipated. Such as, allowing users to write more sophisticated smart contracts, creating invoices that pay themselves when a shipment arrives or sharing certificates which automatically send their owners dividends if profits reach a certain level.
Although Blockchain was implemented as a core component of the cryptocurrency Bitcoin (to make it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server), we can’t deny its many uses and the argument that it’s more than just about Bitcoin.