Unless you are a true techno-geek, the name ‘Satoshi Nakamoto’ is unlikely to mean much to you. But this pseudonym (of an unknown person or group of people) may one day be set alongside famous names such as John Logie Baird and Tim Berners-Lee as a fellow pioneer of the techworld, for this is the name given to the inventor of the blockchain.
“Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value” .
Don & Alex Tapscott, Blockchain Revolution (2016)
For those of us less technical, an easy explanation as to what blockchain is might be to view it as the backbone of a new type of internet. It is the dawn of a decentralised computer network, allowing digital information to be distributed but never copied or changed.
So how does it work in practice?
Someone requests a transaction (which could include the transfer of contracts, records or other information such as cryptocurrency). This is then broadcast to a peer-to-peer (P2P) network of computers (known as ‘nodes’) which validate the transaction and the user’s status using known algorithms. Once verified, the transaction is added as a new block to the existing blockchain in such a way that is permanent and unalterable. This process completes the transaction.
What are ‘nodes’?
P2P computing/networking is a distributed architecture that splits up tasks or workloads between peers – who are equal participants in the application. Peers make a part of their resources (such as processing power, disk storage or network bandwidth) directly available to other network participants without the need for central co-ordination by servers or hosts. Peers both supply and consume resources. The P2P system was popularised by the file sharing system Napster (released in 1999). Recently, emerging collaborative P2P systems are going beyond the era of peers all doing similar things while sharing resources, and are looking for diverse peers that can bring unique resources and capabilities to a virtual community – thereby enabling it to do greater tasks beyond those that can be accomplished by individual peers, yet that are beneficial to all the peers.
So, essentially the blockchain is a bit like a spreadsheet that is duplicated thousands of times across a network of computers, which are designed to regularly update the spreadsheet. Information exists as a shared – and continuously reconciled/updated (every 10 minutes) – database, hosted by millions of computers simultaneously and accessible to anyone on the internet. It is not stored in any single location, meaning that such records are truly public and easily verifiable. No centralised version exists – meaning it cannot be controlled by any single entity or corrupted by hackers. It is transparent and incorruptible, with no single point of failure, meaning that countries worldwide can transact with each other without fear of corruption or manipulation.
Who will use the blockchain in the future?
As a web infrastructure, you do not need to understand how it works for it to be useful in your life. At the moment, it looks like pretty much every sector looks to be able to benefit from the blockchain – for example the finance industry by the use of international remittances, effectively cutting out the middleman for these types of transaction. Global investment bank Goldman Sachs believes that blockchain technology holds great potential especially to optimize clearing and settlements, and could represent global savings of up to $6bn per year.
How may it change the property world?
In numerous ways, too lengthy to list all in this article, but here are just some of the potential benefits within the property world:
- Land Registry
As publicly-accessible ledgers, blockchains can make all kinds of record-keeping more efficient and records of property titles are a great example of this. Property titles can be susceptible to fraud, as well as being costly and labour intensive to administer. A number of countries are undertaking blockchain-based land registry projects - including Honduras, Georgia and Sweden. In July 2017, the UK’s Land Registry released its Annual Report, setting out priorities for an ambtitious digital transformation towards becoming “the world’s leading land registry for speed, simplicity and an open approach to data”. The transformation will involve working with the private sector to research and test new digital registers and exploring blockchain – a plan the Land Registry is calling ‘Digital Street’. The Land Registry states “Responding to a government commitment to drive innovation in the digital economy, HM Land Registry will open up more of its datasets externally and across government to support infrastructure development, financial security, tax collection, law enforcement and national security.”
- Smart Contracts
Blockchain leads to the dawn of ‘smart contracts’ which are programmed to perform simple functions such as including automation so that payment can be made when a financial instrument meets a certain benchmark.
- Automated systems management
Secure blockchain smart contracts can in turn lead to the possibility of automatic remote systems management. Certain types of electronic devices can be network-controlled and managed (a.k.a. the ‘Internet of Things’), for example the monitoring of air temperature in a storage facility. A combination of software, sensors, and the network facilitates an exchange of data between objects and mechanisms. The result increases system efficiency and improves cost monitoring. The biggest names in manufacturing, tech and telecoms are all competing for IoT dominance.
Projects could be financed using crowd-funding technology that relies upon blockchains potentially creating crowd-sourced venture capital funds.
- Transmission of monies
Sale and purchase funds could be transmitted directly - by enabling peer-to-peer payments, the blockchain opens the door to direct interaction between parties (the “no rules” ethos of the protocol means that personal reputation will be even more important to business interactions).
- Renewable Energy redistribution
Blockchain technology enables the buying and selling of the renewable energy generated by neighbourhood microgrids. When solar panels make excess energy, smart contracts automatically redistribute it. Similar types of smart contract automation will have many other applications as the Internet of Things becomes a reality.
- Client due diligence checks
Anti-money laundering (AML) and know your customer (KYC) practices have a strong potential to use blockchain technologies. Currently, financial institutions must perform a labour intensive multi-step process for each new customer. KYC costs could be reduced by means of secure cross-institution client verification, and at the same time increase monitoring and analysis effectiveness.
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