Most people are aware of and somewhat perplexed by “Bitcoin” and the emergence of Cryptocurrencies, that they by and large do not understand. Perhaps if you are a commuter on the London Underground you have even seen these Cryptocurrencies being advertised as investment opportunities.
But few people understand what these currencies are, why they may be significant and, most importantly, the hugely important technology underpinning all these currencies, Blockchain.
I do not propose to try and explain how Blockchain works, even in a simplified form, but some academics, business leaders and visionaries believe it will alter the way that we transact with each other.
So let me try and give my definition of Blockchain. It is – in my words – “A continuously updated, encrypted record (a ledger, if you like) of who owns what, kept in multiple locations and updated in all those locations simultaneously. It therefore provides a full transactional ledger of ownership for any given asset“. This is called a distributed ledger.
It provides a peer to peer system of transferring assets – in this case of Bitcoin, money (but generally “value”) which does not rely on intermediaries such as banks. Phew! Stick with it. I’m afraid there’s more.
Some commentators have described Blockchain as the technology that will take the need for trust out of transacting, or if you like, replacing trust with encrypted, entirely reliable, information. If someone – lets say Barbara – says that they own something Blockchain should give you absolute certainty that they do, as there exists in multiple places a complete and up to date record of the ownership of that asset. If someone – say Barbara again – then transfers that asset (say Bitcoin) to me, in return for a good or service I have given them, ALL the records about that Bitcoin, or the code underlying that Bitcoin, will automatically be recorded as no longer belonging to Barbara, but now belonging to me, Bob.
Blockchain has been described by many academics as “The Next Generation of the Internet”. At the moment when we watch videos or listen to music via the internet we are using copies of the original. Clearly this is not suitable for the transfer through the internet of “value”. If I send someone £100 it is important that I relinquish ownership of that £100 at the same time as the recipient gains ownership. Sending “a copy” of £100 wouldn’t work!
Cryptocurrencies are unique lines of code which can, according to Blockchain theory, only have one registered owner. Other applications for Blockchain currently being used or seriously considered are land registry, mined diamonds, trades in privately held equities, legal contracts, and collection of royalties by rights owners.
But some say that the above is only scratching the surface and making educated guesses at where Blockchain will may lead us. I certainly am not qualified to judge the claims of the converted or the sceptics but I do know that there is a lot of noise – some of it well informed noise – about Blockchain and cryptocurrencies. Perhaps it’s best to watch this space!