Date
6 December 2016
Blockchain is a data structure that enables storage of data among a distributed network of computers. Photo: strategy-business.com
Blockchain is a data structure that enables storage of data among a distributed network of computers. Photo: strategy-business.com

Unleashing the potential of blockchain

Many ancient civilizations dedicated significant effort in registering the tax-paying portion of their populations to ensure income and sustain various social functions.

The census can be deemed the mother of public data. The Ancient Roman Republic and Empire recorded their male adults that were capable of fighting and the Qin dynasty also registered its population to coordinate taxes and duty.

In the modern era, the use of data has become much more widespread.

These data, ranging from ID card numbers, tax records, internet browsing histories to bank account balances, affect the way everyone interacts with the world: your credit record determines your ability to get a home mortgage and your criminal record decides whether you can cross borders or immigrate.

The age of the internet has changed the means of collecting data and broadened access to data but it has yet to change the core structure of data.

The most important data are still controlled by large institutions such as governments and banks. Transactions still need to be verified by a third party.

The current means of data management has two shortcomings.

First of all, the public and organizations of various scales have an increasing need for access to data.

Second, the involvement of a third party in any transaction must inevitably induce additional costs. The development of the internet has taken out the middleman in many applications but in order to replace middlemen more extensively, we need to have a technology that:

1) allows many users to share data simultaneously without affecting personal privacy;

2) guarantees data integrity; and

3) makes transactions less costly than engaging third parties.

The platforms supported by blockchain technology show promising prospects in meeting the above criteria.

Blockchain is a data structure that enables storage of data among a distributed network of computers.

Every time new additions and amendments are made, all computers carrying the information will verify and update simultaneously.

By requiring new additions and amendments to be verified by all the computers, blockchain makes records hack-proof (unless the hacker compromises most of the computers in the blockchain).

The process of encryption also verifies and protects the identities of the sender and the receiver, keeping them from identity theft by hackers during the process.

The renowned internet virtual currency, bitcoin, uses blockchain technology to operate in order to protect the identities of buyers and sellers as well as to avoid the double counting problem, preventing the potential problem of fake bitcoins in circulation.

Yet, the potential applications of blockchain technology go far beyond cryptocurrencies.

Asset and cash transfers that are currently handled by banks can be done with the blockchain and it would greatly reduce the effort needed for clearing, verifying and recording transactions between banks.

Let us look at used cars, for example.

The buyer may worry about the used car having experienced severe accidents or having changed parts, which would compromise the safety of the car.

If the status of every car and even the parts that go into a car are recorded on the blockchain from the moment they are made to the moment they expire, with every accident recorded onto the blockchain by insurance companies, then buyers of used cars would enjoy far greater transparency during the purchase.

The diamond industry has already been using the blockchain to record the features, origin, and transaction history of every piece of diamond in order to prevent blood diamonds from flowing into the market.

People are also exploring the use of blockchain for food safety.

Blockchain technology can be used to improve the ways of tracking the source, delivery and processing of food products in detail, making it easier to trace down any fatal flaws in the case of an incident.

If all the countries in the world would share information of passports, both in use and missing, onto the blockchain, it would be much harder for counterfeit passports to be useful.

Blockchain can also be applied to ownership registries, ensuring that sellers actually own the assets they intend to sell and that such assets are not used as a mortgage or bounded by restrictive clauses or conditions.

Blockchain’s nature of maintaining shared information may cut the time and effort needed for transfers of assets today, such as cross-border wire transfers, by a significant margin.

If banks are relieved of the tasks of clearing and verifying balances, then the time, effort and costs can all be slashed in a significant manner. The potential of this technology is immense.

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RT/RA

Savantas Policy Institute

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