Just as Blockchain technology makes its move into the financial mainstream with IBM and seven other European banks, Blockchain – the company raises $40 million Series B funding round led by Lakestar.
With all the buzz and hype surrounding Blockchain(it made to almost every 2017 technologies to watch out for list), there is still an astounding amount of obscurity when it comes to blockchain technology.
If you are a CIO, CFO or CTO, blockchain has probably crossed your radar with the news of Bitcoin and the distributed ledger technology’s connection with the dark web. Blockchain has come a long way since 2009, and gained more mainstream acceptance as a disruptive technology with the potential to create new foundations for global economic and social systems.
How The Blockchain Technology Works
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In the beginning…
Blockchain’s story begins with Bitcoin, since it was the first ever implementation of distributed ledger technology. Bitcoin was invented by an unknown programmer, as an open source software in 2009. The digital payment system is peer to peer – transactions take place between users directly without an intermediary or middlemen like banks, financial institutes etc. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain.
With Bitcoin, blockchain technology stores all details of each transaction and the technology prevents the same Bitcoin or unit of currency from being spent more than once. So Blockchain is to Bitcoin, what the internet technology is to email. Currency is only one partial use of the technology.
Why is it Revolutionary?
Blockchain technology can work for every type of transaction involving value – be it money, goods or property. From collection of taxes to sending money to foreign shores in countries where banking is difficult, its potential is unlimited. It can also help reduce fraud because the digital ledger is public and records everything.
Opportunity and Challenge
The beauty of blockchain is in its innovative use of existing technologies to allow untrusted parties, independent of a central governance to perform transactions. But in its current form, blockchain has certain limitations in terms of governance, flexibility and scalability. It requires significant computational power and electricity to process each transaction and each block requires a minimum delay of 10 minutes to confirm. Because of the high volume of transaction verification, proof-of-work activity has spiked up- mostly consolidated into four main mining companies all based in China. Therefore, blockchain is not as decentralized as it seems. All transactions are public and open so there is somewhat of a confidentiality conflict, even though the identities of the parties are never disclosed. And despite all its success, the original author of the Bitcoin open-source software is still unknown and open to question, blockchain’s governance relies on individual personalities and agendas.
The essence of the digital, public ledger is that it can enable any form of value to be exchanged between two or more parties in an encrypted format – without mediation from third parties or central authorities. It is this ability to transact anything of any size and form and value has high significance for the future in which “things” in an Internet of Things(IoT) model can be easily monetized.
For CIOs, blockchain suggests a revolutionary way of value exchange made possible by this ‘programmable economy’. For example, land titles can be verified, futuristic autonomous cars will bargain and pay for parking slots, rideshares and even lane changing when the time calls for it.
Adopting blockchain at enterprise level will only work if it is fully aligned with the overarching IT strategy. For CIOs, the first step should be investing in proof-of-concepts and to plan for comprehensive solutions that cover the full gamut from development to rollout and future use. Standardisation and interoperability can be troublesome owing to the need for collaboration across all parties involved.
With cybersecurity concerns looming large, blockchain can also be leveraged to protect sensitive information. CXOs must think strategically and conceptually about the longer-term business models enabled by next-generation digital currency platforms that will ease their use. How can CIOs get started? By starting to use it personally at first, getting a digital wallet and buying with digital currency, taking steps to ensure they are updated with the latest about blockchain, hiring key blockchain IT personnel to get going, and perhaps launching a next-gen blockchain architecture project albeit on a pilot basis for the company to learn, gain experience and test the waters.