You’ve probably heard of bitcoin, the most recognized online cryptocurrency, but like me, you may not know very much about it. The concept of a peer-to-peer (P2P) currency which requires no intermediaries to facilitate transactions is exciting to me, because of its potential to make transactions more efficient. Nobody likes middlemen.
The concept behind bitcoin, and other similar currencies, is the blockchain. Blockchain is a distributed ledger of transactions, replicated across the network by members or users of the chain in sequence. Each new entry is timestamped and follows the previous valid transaction. A transaction, once validated, cannot be reversed. The strength of the process is rooted in the distributed nature of the blockchain. It’s basically a constantly updating database that everyone has a copy of, or at least part of a copy of it.
Deloitte held a Dbriefs webinar on blockchain on January 14. It was an introduction to all of us (it seemed) to the confusing concept of blockchain, and how it will be used in the future by businesses to conduct transactions. The Big Four are really starting to explore the potential of blockchain in this area.
In case I haven’t made it clear (and that’s a real possibility), the picture in this WSJ blog post is worth a thousand words, and at least several thousand of my words.
In talking to a friend of mine the other day about blockchain, he noted that the primary risk is on how distributed the blockchain is, or whether any single entity controls a significant part of it. This makes sense, because if any one entity controls a significant part of the chain, it can effect fraudulent transactions, and replicate them across the chain.
A second criticism of blockchain is whether there is anything original about it if there is no cryptocurrency involved. For bitcoin, it only exists in its blockchain. For transactions involving non-cryptocurrencies, is blockchain any different from a database with a distributed version of multiversion concurrency control?
I’m pretty interested to see where this technology takes us. How do you think bitcoin, and the blockchain, will be used in the future?