Blockchain – The Complete Guide for Beginners 2019
Think about which was the last truly disruptive technology that has helped us transform our lives completely. The answer is – the Internet. The effect that it has had on each and every aspect of our lives is considered similar to the way blockchain is expected to affect our future. But what is blockchain technology and what can we expect from it?
The following guide provides everything you need to know about the hottest new technology that is already penetrating plenty of sectors within the global economy – both on macro and micro levels.
The Complete Blockchain Guide for Beginners 2019. What is #blockchain #technology and what can we expect from it? | via @daytradingz
What is a blockchain?
When most people hear blockchain, they immediately think of bitcoin. Although the blockchain, as the underlying infrastructure, is the main reason behind the success of the cryptocurrency sector, it is now considered a very common technology, suitable for application and optimization of all types of processes within different structures.
The idea behind the technology is to reach a higher level of security through decentralization. The decentralization is achieved with the help of a network, built from separate nodes (each node can be a user’s computer, for example).
Blockchain – a distributed, decentralized public ledger technology, consisting of a set of records (also known as “blocks”), linked together with the help of cryptography.
Storing copies of the records all around the network basically means that there is no possible risk of losing information.
The way the technology is built, as well as the fact that it removes the need of having an intermediary (a central hub for storing information), help it bring transparency (everyone on the network can check the copy of the blockchain, stored on his computer) and reduces the risk of frauds (the information can be recorded and distributed, but not modified).
“Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.”
- Vitalik Buterin, Co-founder of Ethereum and Bitcoin Magazine
KPMG’s research quantified the expected benefits of blockchain adoption. The results are as follows:
One of the best characteristics of the technology is its robustness – up to date, there is no reported point of fail. But why is the blockchain considered a nearly-perfect technology?
It is all because of the fact that in order for a transaction to be processed, the blockchain should enter a state of consensus. Or in other words – to receive confirmation from all nodes around the network.
This turns it into a robust, self-auditing ecosystem that checks itself on a certain time frame. This minimizes the risk of errors, frauds, and manipulation.
The history of blockchain
The first idea of a blockchain-like cryptographically-secured system to provide incorruptible, transparent and efficient technology was born way back in 1991. In its current form, the blockchain appeared for the first time in 2008 when Satoshi Nakamoto came up with the idea of bitcoin.
His main concept was to create a “purely p2p version of cash”. In order to achieve that, he decided to refine the initial idea of the blockchain.
The innovation that helped the ledger technology become what it is today was the method of adding new blocks (records of information) to the chain without the need of having a third party authorization. The confirmation was intended to happen all within the system making it a self-sufficient solution.
That way, with the course of time, the blockchain started instilling trust and establishing itself as an efficient and transparent way to optimize operations.
The current state of the blockchain technology
Although the blockchain technology has not even matured yet, we are already witnessing how it can improve our economy and the way we run our businesses. While blockchain became famous due to its crucial role in the rise of digital currencies over the past decade, nowadays it has proven efficient in many other niches as well.
The success and the hype around the cryptocurrency industry just helped companies from various industries recognize the advantages of the blockchain technology and focus on its application within their organizations.
Today, it is applied in numerous industries, for the optimization of a wide range of processes, but we will divide them into two groups – non-finance and finance related:
Although at first, the blockchain technology appeared within the digital asset sector, it is now adopted for a wide range of tasks within all types of companies. One of the most popular applications of the distributed ledger is for data collection and storage as it provides a nearly-perfect alternative to the cloud storage services.
That is why, blockchain is starting to evolve as a preferred way to manage information within governments, regulatory authorities and high-profile institutions.
The blockchain adoption is eased further by the idea of smart contracts. Smart contracts are basically the digital version of a real contract in its physical form.
Due to its decentralized nature, the distributed ledger technology has the power to prevent all types of frauds which makes it a perfect solution for handling crucial tasks and processes like transaction authorization, identity verification, electronic voting, etc.
These computer protocols can facilitate and verify a certain transaction (it is trackable but irreversible) without the need of third parties. In business, smart contracts are used with the main idea to make it easier to track whether different parties act in accordance with certain terms.
Or in other words – it makes sure that the contractual terms are implemented once all pre-set conditions are met. One of the most common forms of smart contracts, used in business, is developed under an IFTTT code (if this – then that) and can execute itself upon pre-defined rules.
But what are the real-life applications of smart contracts? The smart contracts are used in the health care sector, where patients’ information is stored under a private key.
That way each patient has its own, easily accessible medical history. Smart contracts also help streamline the communication process between patients, healthcare facilities and insurance companies.
Once a patient goes through a surgery, the information can be transferred to the insurance company as a proof-of-delivery. The digital contracts are used for general management issues, such as drugs supervision, regulatory compliance, supply management, result testing, etc.
They are often used in the music industry as well. Smart contracts can help solve problems like copyright infringement, royalty distribution, etc., by creating a decentralized music rights database.
Application within the financial sector
The financial sector is progressively leaning towards blockchain technology. The reason for that is not only the cryptocurrency asset class. In fact, it helps financial institutions streamline their operations in many different ways.
For example, anti-money laundering (AML) compliance procedures are optimized by digitizing their legal frameworks. This helps banks and big financial institutions automate their regulatory reporting processes, as well as ensure a much-easier transaction verification.
The blockchain technology helps in the process of streamlining the order settlement in stock trading as well. Usually, the settlement procedures (particularly those of cross-border transactions) are expensive and somewhat risky.
That is all because the process involves multiple parties such as brokers, custodians and settlement managers. Each of them is required to keep personal transaction records. This significantly increases the overall costs and the risk of potential errors.
Some of the fastest growing companies in the USA also rely on blockchain and artificial intelligence. For example, Trade Ideas currently ranks #3012 in the INC5000 2018 with a 3-year growth rate of 134%.
The blockchain technology benefits the investors by removing the need of intermediaries, thus streamlining the whole process. By making the transaction process more efficient, it helps to reduce the costs for authorization and settlement procedures.
A large number of investment apps are already using this technology, and the biggest investment houses will undoubtedly soon be launching their first products on the market. It remains to be seen what role classic brokerage accounts will play.
Apart from that, by encrypting all stored records, it significantly minimizes the risk of errors. In the insurance sector, for example, the blockchain technology helps optimize the claim processing activities.
Manually-handled time-consuming tasks such as identifying fraudulent claims, abandoned policies or dealing with highly fragmented data sources require a significant amount of work which means that there is a large room for errors.
Through encryption, the blockchain technology helps insurance companies quickly identify the ownership of a certain asset in an easier, risk-free and very transparent way.
The future of blockchain
The blockchain technology is expected to become the dominant infrastructure within private and public organizations. The rapid technological development means that we would need to store more and more data.
But it is not only about the volumes.
The storage should be transparent, robust and efficient in every possible aspect. Blockchain provides all that. Finally, it seems that we have an all-in-one solution. Future projections do also confirm that:
- The business value added by blockchain is expected to surpass $176 billion by 2025 and $3.1 trillion by 2030;
- Blockchain will go mainstream in three main categories – mobile payments, supply chain, and identity-related issues;
The blockchain is expected to completely change the future of finance as well. The distributed ledger technology will continue to improve the way information is stored, as well as streamline the accounting services, payment processing, day trading, and investment activities, collateral management, asset registers, etc.
The truth is that blockchain has proven to be a technology with an exceptional potential and an extremely broad set of uses. This potential is already recognized by some of the biggest companies and the launch of their blockchain programs.
To some extent, JP Morgan, IBM, Spotify, Goldman Sachs, Google, Deloitte, Visa and plenty of others are all involved with the technology.
Some of them are investing in it, others are running accelerator programs for startups, but the one thing they all have in common is that none of them is letting such a disruptive technology pass by, without taking advantage of it.