A blockchain is a virtual register invented by Satoshi Nakamoto that records and tracks transactions, especially ones made in the form of cryptocurrencies, which have no physical form and exist only digitally. The record of transactions is constantly updated into chronological lists known as “blocks” that do not involve government or financial oversight. A block contains the latest transactions of a good or contract. The block of transactions is linked to the previous block before that, and so on.
The computers that track these transaction lists are “nodes.” This network of nodes validates, tracks and preserves the complete records of each of those chronologically organized blocks—the data of which is permanent, public and unalterable. Another unique aspect of blockchain is that it can be programmed to record virtually anything of value, not just financial transactions.
The frequent harmonization of transactions in a blockchain’s distributed ledger eliminates the need for a trusted third party, because everyone who is involved in the transaction is also involved in the ledger. This is a major element attracting users to blockchain. This concept reduces the need for costly lawyers and wasted time spent interpreting clauses and contracts. The distributed ledger is automated, inexpensive, and includes the elements of the transaction that both (or often more than two) parties agree to with no middleman.
Did you follow all of that? Let’s use an analogy to make blockchain technology easier to understand.
Think of the process as a lunchtime transaction. A group of students at a cafeteria table witness a conversation between two of the students in the group, where they acknowledge that Student #1 has a chocolate chip cookie and Student #2 has a pudding cup. The two are prepared to make a trade. As the two students complete this transaction, the students witnessing it happen write it on a whiteboard for all to see. The principal notices the commotion and demands to know whose pudding cup it is. At this point, all of the students at the table speak up and explain that Student #1 is now the owner of the pudding cup. They all saw the trade happen, therefore verifying its legitimacy, then wrote it down so everyone else could be aware of it, too. This is, simply put, the process of the blockchain. All of the computers in the distributed ledger of the blockchain attest and confirm their witnessing of the transaction and the accuracy of the elements involved.
The concept behind this underlying technology is eliminating the possibility of manipulation, trade and settlement inefficiencies, and the inconvenience of dealing with major financial transactions between several institutions, which can sometimes result in a decrease in transparency and an increase in risk of fraud. These transactions and data are not overseen by one central authority—but rather a decentralized user-to-user basis.
How is blockchain technology being used today?
Primalbase, an Amsterdam-based workspace initiative that began in 2017, promised to deliver five coworking spaces across the world with a focus on decentralised tech. Currently, spaces are open in Amsterdam, Berlin, and London. Those who paid for a chunk of the only 1,000 tokens on the Waves blockchain that were issued are called “tokenholders”, or “core members”. They have a lifetime membership at Primalbase and can set any price for a one-day lease of their digital asset (the workspace). All others must lease a token from a “tokenholder” or pay for membership in cryptocurrency or fiat, which is monitored on the—you guessed it—blockchain. Purchasing a token from a current owner is also an option. At the time of writing, a day-long token cost just under €0.50. The platform only accepts Ether as a way of payment for the token lease, to enforce the rule that those involved have a basic knowledge of blockchain. Primalbase profits 10 percent off each transaction, with the rest going directly to the token holders, thanks to the leasing model of Primalbase. “We’re one of the few companies that went through an ICO and are delivering on our promise to the token holders,” said Ralph Manheim, the CEO of Primalbase, in an interview with Tech.eu.
Brazil’s largest private lender, Itaú Unibanco, has partnered with Wells Fargo and Standard Chartered to raise $100 million dollars to test a platform for small syndicated loans in Latin America. The goal is to reduce complexity, the amount of contact exchanged between the parties, the risk of fraud, and of course, costs. The banks negotiated all of the loan terms through the blockchain of a platform called Corda, according to Reuters.
A London based company called Calastone will be moving its entire system to blockchain in May of 2019. The company is an investment funds transaction network that assists nearly 2,000 companies sell their funds through financial institutions. The act will decrease costs and see 9 million messages per month between said institutions, according to Reuters.
In 2017, a partnership between BP, Royal Dutch Shell of Norway, Mercuria Energy Group, Koch Supply and Trading, and Gunvor resulted in the creation of Vakt, a blockchain-based platform created to centralize records between the parties involved in the trading of crude oil. It will target the full spectrum of commodities trading, according to Reuters, ranging from oil to wheat.
The increased use of this technology has even resulted in “Blockchain for Europe,” a lobbying association representing the interests of Ripple and three other blockchain based companies NEM, Fetch.AI, and EMURGO/Cardano, in the EU. According to Lucidity COO Nikao Yang, identifying the potential of Blockchain for real world uses (such as crude oil and small loans, as mentioned) will separate blockchain from the stereotypes and assumptions of cryptocurrency, since they are in fact quite different.
There is still the risk of both the possibility of fraud, the performance of the technology and how it is far behind companies like Visa when it comes to processing transactions (a public blockchain might process 15-20 transactions per second, compared to Visa’s 24,000). Also, there remains the question of how secure the technology truly is. This is something we will only discover through both use and time.
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