BlockChain Revolution
As a tech lead at Carsguide.com.au, I am always looking at new technology that can help the company improve productivity or create new services.
With the buzz around Bitcoin and blockchain, I decided to investigate this technology to see what all the fuss was about.
For those who are not familiar with Bitcoin, Wikipedia describes it as:
“… a worldwide cryptocurrency and digital payment system, called the first decentralized digital currency, as the system works without a central repository or single administrator”
The underlying technology of Bitcoin is the blockchain, which can be described as a digital ledger.
“A blockchain can serve as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”.
Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. These hashes are created by mathematical formulas, similar to public and private keys used for online transactions.
Each block is also immutable, which means it can not be changed without effecting other blocks. This is one of the elegant solutions of the blockchain.
The idea for digital currencies has been around since late 1990’s, but they had problems with “double spend”, which refers to making multiple transactions with the same digital currency. For example how do you stop a person using their digital currency to purchase something on eBay, and Netflix at the same time?
The blockchain solves this by creating “hashes” that are immutable, for example if the following transaction was added to the blockchain
a hash code is create, for example it might look like this: 580755413
Now if someone tried to alter these transactions, for example they change the 2 to a 6, to say they transferred more bitcoins, the hash code created would be different, for example it might look like this: 1699026905
As the blockchain is a peer to peer distributed ledger (think bit-torrent) anybody on the network has a copy of the ledger. So someone could potentially alter records, however there needs to be consensus from the network, before a transaction is confirmed. For example if the network had 5 different users on the network, and Person1 altered their ledger, the other 4 people on the network would have to verify that Person1 ledger is the same as their’s before the transaction is recorded, this is known as “proof of work” .
Transactions are processed by “miners”. Miners are computers on the network which process the algorithms that make up “proof of work”, as the mathematics for this is complex it requires fast computers, most small scale miners create mining rigs with 4–8 graphic processors (GPU), as these are better at performing calculations compared to CPU’s. Large scale miners create warehouses full of these mining rigs. Miners are rewarded with coins, if their machine helps verify a hash.
Interesting fact, due to the increase in miners there has been a shortage of high quality GPU’s on the market, the manufacturers are not able to make them fast enough.(At time of writing this blog)
Currently for someone to alter the blockchain they would need to change all the ledgers at the same time, it is predicted that it would take around half of the most powerful computers in the world to do this. For example if there was 1000 of these computers in the world, it would take someone to own 501 of them to change the ledger. Currently this is highly unlikely as no corporation or country has the computing power to do this.
How does this effect our business?
Experts are saying “… blockchain will disrupt the banking system…”, currently our banking system takes 3–5 days to process payments or transfer money from one country to another.
Transactions on the blockchain are faster they can take between 2- 5 mins, depending on the block size. Transaction fees are significantly cheaper compared to banks as well, for example some credit card companies charge a 3% fee on some transactions, using the blockchain these fees are significantly reduced to around 0.01%.
Banks around the world have been scrambling to update their systems as they see the benefit of blockchain technology, for example Visa has started a project to investigate b2b payments using blockchain.
Trust
The biggest impact the blockchain will have on businesses is “trust”. Business runs on trust.
With the blockchain car dealers can record the history of each vehicle in a ledger that is immutable. This ledger would have the full history of ownership for the vehicle, if its been in an accident, how many KM it has travelled, full service history and record of previous owners. Customers would have confidence that the car they are buying is actually what they are paying for.
Also with the speed of transactions, sellers will be able to receive their money faster, pretty much on the same day as sale. This can help reduce some of the risk dealers face when they accept bank transfers and checks.
Ethereum
There are problems with the current implementation of Bitcoins blockchain, currently it has a block size of 1Mb, and does not scale well.
The number of transactions on the network has increased from the thousands to the millions, when it was invented (2009) network speeds was not as fast either.
This is causing transactions on the network to take up to 15min in some cases, you can speed up transactions buy paying more to move your transaction up the list, but this is not ideal.
To solve this issue Ethereum was created, which builds on top of the blockchain. Ethereum has a bigger block size and is scaleable. However it also allows developers to build decentralized apps (DAPPS). It has its own programming language called ‘Solidity’ which allows developers to build apps on the network and create “Smart contacts”.
Smart contacts are digital contracts that can execute when certain conditions are met.
For example:
An apartment in Ukraine has become the first-ever property to be bought and sold using blockchain, potentially heralding a new era of transparent and efficient real estate transactions.
Ukrainian developer Mark Ginsburg sold the Kiev property to Michael Arrington, co-founder of the tech news site TechCrunch, for $60,000 via smart contracts on the Ethereum blockchain.
Ethereum is internet 2.0
Overall blockchan will have a huge impact on business, from record keeping to payments, all verticals of business will be effected by this technology.
We are at a stage similar to what the internet was back in mid 1995, people back then would say things like
“yes I know I can buy and sell products online, but why would I do that?”
Now we buy and sell products online without a second thought.
It took a couple of years and a number of iterations before purchasing product and services online became common practice. This will also happen with blockchain technology. Any company that ignores this technology is doing it at their own risk.
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