Cryptocurrencies like Bitcoin and their underlying technology, blockchain, are disrupting the way in which we transact. However, the strengths of blockchain – transparency, security and immutability – also pose risk when applied in a commercial environment. So, where did blockchain come from and how this technology disrupting the way we do business?
What is blockchain technology?
Blockchain is a form of distributed ledger technology (DLT) that connects different people or businesses online by providing a secure and trustworthy record of their transactions without giving control to a third party. Every item exchanged or amendment made to a transaction is added to the DLT. This means everyone on the blockchain can see what has happened with any item exchanged, in any transaction, at any point.
The community of people who are linked through peer-to-peer exchange in the blockchain are called ‘smart contracts’. These contracts describe the rules that must apply to every transaction and are agreed upon and defined by the blockchain community. Transactions cannot happen and rules cannot be changed without the consensus from of community.
The rise of Bitcoin
Bitcoin launched into the world in January 2009 as an experiment led by Satoshi Nakamoto, releasing the first open source bitcoin client and issuing the first bitcoins. The uptake of bitcoin was very slow in the early days, as it was initially seen only as an experiment by highly technical cryptographers and computer scientists. Very few within financial services and outside the cryptography community fully appreciated its worth.
Sophie Gilder, Head of Blockchain at the Commonwealth Bank of Australia agrees, saying: “CBA started reviewing bitcoin and considering the impact of cryptocurrencies in 2014. It took a long time for bitcoin to be taken seriously from its inception in 2009 until that point.”
It took some time before the wider community and the banking sector appreciated that the revolutionary aspect of this new cryptocurrency wasn’t about creating value using bitcoin; it was about its underlying technology, blockchain, which had much wider potential.
What’s next for bitcoin and blockchain?
Appetite for blockchain applications has snowballed and moved well beyond financial services. This is because it provides a mechanism to prove validity and accuracy of information, which has the potential to open new economic activity in areas such as financial services, supply chains and government registries.
According to the Head of Consulting at Ovum, Andrew Milroy, blockchain protocol is set to revolutionise IT in the same way as the internet has over the past 20 years.
“Blockchain can disrupt financial services by disintermediating multiple processes and embedding security and privacy into everyday activities. The blockchain, as a decentralised, universal ledger, is set to be at the heart of financial services,” he said.
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