Blockchain technology is getting a lot of attention these days. You’ve probably read an article in a newspaper about this technology or heard people at work talking about it. If you aren’t quite sure what the technology is, don’t worry. The technology is complicated and fairly new, so there’s no shame in not knowing much about it.
As a CIO, you don’t need to be an expert in this technology, but you should understand the basics. This can help your company take advantage of it. You can hire IT professionals who have a strong understanding of the technology and can help your company innovate.
Read on to learn what this technology is and how it works.
What It Is
This new technology was first described back in 2008. A person or group of people calling themselves Satoshi Nakamoto released a whitepaper that launched Bitcoin, now a popular cryptocurrency. This whitepaper descripted blockchain, the new technology that made Bitcoin work. The real identity of Satoshi Nakamoto still hasn’t been revealed, which adds a compelling mystery to this technology.
Blockchain is a decentralized, digital ledger. Different people can add records to the ledger since it’s decentralized. Once a record has been added, it can’t be changed or tampered with. This means the ledger provides a complete, trustworthy record of all prior transactions.
How It Works
Now that you know what this technology is, it’s time to find out more about how it works. A global network of computers manages the database that records transactions. Millions of computers around the world host the data. Since the database is decentralized, these computers can be owned by anyone.
To create a new record, the information first has to be entered. Think of this like typing data into a cell in a spreadsheet. However, unlike a spreadsheet, one person’s input isn’t enough to make a change. Before the record can be added, multiple nodes in the network need to agree on it. One way this occurs is the proof-of-work method. In this method, users’ computers repeatedly run hashing algorithms to verify the records. When you hear about people mining Bitcoins on their computers, they’re running these hashing algorithms.
Current Uses for This Technology
Right now, a major use for this technology is Bitcoin. Bitcoin is the world’s biggest cryptocurrency. People can use their bitcoins to purchase goods and services anonymously. Many reputable companies, like WordPress.com and Microsoft, let users pay for services with bitcoins.
Other cryptocurrencies use this technology, too. Cryptocurrencies other than Bitcoin are known as altcoins. Popular altcoins include Ethereum, Ripple, and Litecoin. Altcoins try to improve on Bitcoin. For example, Litecoin transactions are faster than Bitcoin transactions.
Cryptocurrencies aren’t the only current use for this technology. Startups are using this technology for many exciting purposes in various industries. Abra uses a blockchain-enabled mobile wallet to let users send money to people around the world, with no bank account or credit card. Startups like Tierion have built platforms for healthcare data storage with this technology. Storj is beta-testing a blockchain-enabled cloud service network. Many other startups are using this technology for their products and services, too.
Potential Future Uses for This Technology
Right now, blockchain projects are fairly small in scale. Startups are creating exciting platforms with the technology, but they’re not widely used. Even Bitcoin, the world’s biggest cryptocurrency, only has about 10 million global users. That may seem like a lot, but to put that figure into perspective, there are more than 3.5 billion internet users in the world. Blockchain and its related applications have a long way to go before they reach their potential.
In the future, this technology may have major impacts on the banking industry. Since people can send money without fees with this technology, banks could potentially save a lot of money by using it. Banks could also offer faster transactions. They could also keep secure records; fraud is a big concern for banks, so a tamper-proof ledger is understandably very interesting to them. Many large banks are testing this technology and looking to see how they can adapt it to meet their needs.
Other industries could be affected too. Goldman Sachs has predicted that the electricity market could be much different in the future thanks to blockchain. Right now, central power providers send electricity to homes and businesses. In the future, a distributed network could be created with this technology. People could generate their own electricity and sell it through the network.
Blockchain could also be used to build trust online. People’s identities could be securely stored with the technology, and their identities could be linked to various sites online. This could help prevent people from causing trouble online and then creating new accounts to try to hide their reputation. For companies like Airbnb, this future application could be very useful. Guests wouldn’t need to worry as much about safety, and hosts wouldn’t need to worry as much about bad guests who cause damage.
Obstacles to Adoption
While blockchain is an innovative technology with a lot of potential, there are also obstacles holding back adoption. Since the technology is still fairly new, challenges like data limits still need to be ironed out. The regulatory status of blockchain and cryptocurrencies is also unsettled. National governments regulate traditional currencies, but no one regulates blockchain or cryptocurrencies. Some business owners may not want to start using this technology until they’re sure of its legal status.
Cultural adoption is another obstacle. Right now, users and operators are used to centralized systems, like the ones traditional banks have. Eighty-seven percent of Canadians say banks are stable and secure, and 80 percent trust banks to keep their personal information safe. Since most people are satisfied, they may not want to take a chance on a new technology they don’t know much about. Blockchain enthusiasts will need to sell the benefits of the technology to the general population and to businesses.
Another obstacle is that companies already have systems that work. The systems may not be perfect, but they’re getting the job done. To start using new technology, these companies could need to make significant changes to their current systems. They could even need to completely replace their current systems to make them compatible with blockchain. Risk-averse companies may not want to do this anytime soon. Even innovative companies will need to strategize about making the transition, which can’t happen overnight.
Energy use is another obstacle with this technology. Storing and verifying the records takes up a lot of computer resources. When computers around the world are all processing transactions, the electricity demands add up quickly. In June 2015, a single Bitcoin transaction used enough electricity to power 1.57 American households for a day. That was bad enough, but the electricity demands have gotten worse. Now, one transaction uses enough energy to power 3.67 American households for a day.
As more people start using Bitcoin and other blockchain-enabled technologies, even more electricity will be needed. Engineers will need to figure out ways to make these technologies use less electricity. You’ll need to hire talented employees now to tackle this problem.
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