For those of us that are technologically challenged, weaving our way through the maze of terms, ideologies, stories, rumours and facts regarding the IT world can be daunting and even embarrassing at times. One of the latest more fashionable terms to escape the world of technology is “Blockchain”. Blockchain technology originated in the shady world of Bitcoin, which is a “crypto-currency”.
Ok, what is a crypto-currency? This is an electronic form of currency that can be purchased with or sold to obtain dollars, or rupees, or pounds, or yens, or what ever currency you are using at that time and can be used exactly the same as any currency to buy and sell goods or services – it is not produced or printed or created by a central bank, but rather it is created by computers and simply exists only in computers.
Just like any other currency it can be traded and fluctuates in value based on its demand. Interestingly, it only varies in power to its printed currencies as it is limited and only a certain amount can be produced – it’s limit is restricted by the software that produces it (this would create a problem for the central banks of the world that seem to take great excitement from printing vast amounts of paper money to try and artificially stimulate economies – with limited success). While Bitcoin was often linked to the underworld trade in drugs in the early days (and no doubt it still is), this form of currency is becoming more and more popular around the world for use in every day trade.
Blockchain technology was invented by a yet to be determined individual that at one stage was rumoured to be someone by the name of Satoshi Nakamoto (an apparent alias) and has now been recently linked to an Australian gentlemen by the name of Craig Wright. The purpose of this technology was to create a secure system for trading a currency that would remove the “middleman” (or in other words, Banks and Governments) from transactions and allow individuals and businesses to trade on a P2P basis (Peer to Peer – or from one individual to another or one business to another business without going through a bank or other third party). Aside from making all transactions between parties much more transparent and faster, it would also ensure that all transactions where undertaken with minimal costs. The greatest advantage that is touted regarding this technology is its security – it is apparently impossible to alter the details of a Blockchain transaction. However, bitcoin is still subject to theft, as has been seen on several occasions when Bitcoins where stolen from Digital Asset Exchange Companies which where hacked. Digital Asset Exchange Companies are groups that provide individuals and businesses with places to store the electronic currency and exchange bitcoins into their local currency or to buy bitcoins to trade with.
Now, the focus of this article is Blockchain technology. In simple terms, Blockchain works by linking each transaction (or block) to the next transaction to form a chain and each block in the chain is verified before another block is added. These transactions are created and stored using a network of computers around the world. Computers around the world are all ultimately linked through various means and there are many networks that are specifically setup or are available for use by anyone, if you know how to. So if you create a transaction, it is repeated thousands of times in thousands of computers, meaning the copy of the original transaction is copied thousands of times, making it impossible to change the transaction as it matches itself over and over ensuring that the integrity of the original transaction is maintained – simple! Safe to say, it is a very secure system. Now there are various specialists who create these transactions and make money/reward by doing so – these IT specialists (short for nerds) are called “miners” – and that is where I will leave that.
What is exciting about Blockchain technology today is its use and application. It has extended well beyond being used for currency exchange (Bitcoin is one of many crypto-currencies). Today Blockchain technology is being used in legal contracts, including property settlements, it is being used for invoicing between businesses and the funding of those invoices, it is being used to trade power supply generated through solar power systems located in homes and so on. The use is endless as it represents a truly secure means of undertaking online transactions and the savings are substantial, not only by removing paper, but by removing all the people needed to handle and verify that paperwork.
Recently a Perth startup company, Power Ledger, teamed up with Ledger Assets – Australia’s largest Blockchain company – to commence a trial to allow households to commence trading power between each other (Financial Review, Blockchain to Power P2P energy Trading, 14 August, 2016). In other words, if you have a rooftop solar power system that produces excess power at anytime, another house, may purchase that excess power off you using Blockchain technology.
If you thought you would by-pass the banks with this technology, think again, R3 CEV, a consortium of 51 global banks, including CBA, Westpac, NAB and Macquarie Group, have been investigating more than 25 Blockchain strategies. The most recent and exciting one being its use in Trade Finance – a complex and costly process used to fund massive trade transactions for large volumes of goods moved around the world (Financial Review, Trade Finance is Going Digital, July 25, 2016).
The digitization of legal contracts was reflected in an article in the Financial Review, titled, “Paperless apartments sale makes history” (June 09, 2016), where an individual was the first to use the Federal governments PEXA system to complete the conveyancing as well as the signing of contracts using eContracts and eSigning technologies from InfoTracks to buy and settle a contract in 10 minutes, through to settlement. While not all operated on Blockchain – legal contracts will be the next to use this exciting technology.