Blockchain is not the same as Bitcoin
A few weeks ago, I visited a lecture on the topic of blockchain. It was not an expert conference for blockchain and therefore the knowledge about that topic was relatively low among the audience. As often in such a case, the phenomenon of blockchain technology was explained mainly by the example of cryptocurrencies such as bitcoin. This is understandable on the one hand because cryptocurrencies such as bitcoin are by far the most well-known application of this technology and many fundamentals of the technology can be well illustrated using that example. On the other hand, however, it is a pity that the discussions following the presentations usually focus very strongly on the evaluation of this alternative type of currency. Often the equation Blockchain = Bitcoin is created and thus the central promise of the Blockchain is often not understood.
Decentralized versus platform
Blockchain can be understood as the next evolutionary step in Internet technology. The first generation of the Internet has revolutionized the exchange of information. With Web 2.0, Internet-based applications and social networks moved into our everyday lives. The central promise of the blockchain is to revolutionize value transfer via the Internet. The border between consumers and producers is already flowing today. Anyone can offer their goods and services online, sell films or music or even rent out their apartment on a daily basis. However, we always need an intermediary to process these transactions. On the one hand, this adds costs, and on the other hand, it has led to relatively few very big platforms accumulating huge amounts of data about us in their data centers. We pay for the services, which are often offered free of charge, by making our data available to the advertising industry. In addition, there is the power to decide on the content on the platforms.
Value transfer without intermediaries
Blockchain technology eliminates the need for these central intermediaries by enabling transactions directly between participants (peer-to-peer) in a decentralized network. The participants of a blockchain network are connected to each other via a decentralized, distributed network. Each participant has a ledger that contains all transactions between the participants. Transactions are stored in blocks with a fixed sequence. This gives each transaction a unique time stamp. Strong cryptographic procedures and decentralized copies ensure that transactions cannot be changed after they have been committed. On this data basis, all participants in the network can validate new transactions and thus prevent misuse. Transactions in such a network are traceable and verifiable, without being monitored by a central intermediary. Blockchain technology can be seen as a transaction protocol where trust is technically established. Participants can, therefore, execute transactions with completely unknown or even anonymous participants.
Smart Contract - the programmed contract
Complex rules and regulations can be mapped in blockchain networks by so-called Smart Contracts. A Smart Contract is basically a computer program that contains the logic for processing a transaction. In a Smart Contract, predefined transaction rules are automatically monitored and defined actions are executed automatically when a certain event occurs. For example, it is already possible to insure yourself against flight cancellations or delays. If the passenger has purchased a corresponding insurance policy, the Smart Contract automatically checks the claim for compensation by evaluating verified flight data.
Added value for companies
From a business perspective, this means that you have to be prepared to completely rethink business processes or even complete business models. Many companies are already investigating possible applications. Possible added values for companies are among others:
· Lower transaction costs, since traditional intermediaries such as banks, are no longer needed
· Higher transaction speeds through peer-to-peer processing
· Greater transparency and traceability of transactions through the distributed ledger
· Distributed data control. Since all participants in the network have access to the same data and can change it according to previously agreed rules.
· Greater transaction security through strong cryptographic procedures and the elimination of a single point of failure
Technology still in its infancy
But the truth is also that many components of this technology are still at a relatively early stage of development. Productive applications apart from the cryptographic currencies are still rare today. But in contrast to the major trends of recent years such as Cloud or Big Data, the development of blockchain technology is progressing very fast. I am absolutely sure that this technology is here to stay. So companies are well advised to explore the capabilities and limitations of this technology.