There has been quite some talk about blockchain in the last decade and much ink has been spilled to give a definition.
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.
Blockchain technology has been a major disruptive force over the last couple of years. Its ability to guarantee transparency and eliminate intermediaries all the while ensuring the security of all sorts of transactions made it resist and overcome the initial skepticism of both the general public and especially financial institutions. And despite promising adoption rates and favourable feedback, blockchain is still relatively new compared to the systems it is designed to replace. Additionally, its complexity coupled with bad PR led by traditional financial entities (out of fear of losing ground to the technology) meant some myths, misconceptions and controversies arose and are now inevitably associated with blockchain.
“Blockchain and cryptocurrencies are basically the same thing”
Ever since the introduction of Bitcoin in 2008, the terms blockchain and cryptocurrency have been used interchangeably. However, they don’t mean the same thing – despite their strong ties. To figure out the difference, let’s first define each term:
- A cryptocurrency is a digital asset used as a medium of exchange, like the Euro or US dollar. It is stored in a decentralised and transparent manner within public ledgers, typically a blockchain.
- Blockchain is a public ledger that uses a chain of blocks to store different kinds of records and transactions. It has key benefits for businesses, such as decentralization, persistency, anonymity and auditability.
Both definitions show how blockchain is the system, which in turn enables the storage and exchange of cryptocurrencies. To put it simply, we wouldn’t have cryptocurrencies as we know them today if it wasn’t for blockchain.
“Blockchains can only be public”
Blockchains have always been portrayed as the alternative to traditional financial services, mainly because they are public. However, this statement isn’t entirely true. There are other types of blockchain, such as private, consortium and hybrid blockchains. All four types share some similarities as they more or less follow the same basic principles. They contain a cluster of nodes operating on a peer-to-peer network system. Nodes are the equivalent of servers that verify and exchange transactions and build the blockchain blocks.
The differences between the four types are mainly the visibility, access and participation in the consensus process.
- Public: Transactions are visible to everyone and there are no restrictions on who can participate in the consensus process
- Consortium: As the name implies, consortium blockchains are managed by a group of members utilizing pre-defined nodes with access permissions, such as writing, reading blocks and performing transactions
- Private: A private blockchain is one used within an organization. Permissions are centralized and restricted to selected members
- Hybrid: This is a combination of public and private blockchains. This type of blockchain offers flexibility and control since members can decide which data to keep private or to share publicly
“Blockchain use cases are only aimed at the financial industry”
This statement would have been true a decade ago, however, blockchain has come a long way since then and now covers more use cases and industries other than just the financial industry. For instance, blockchains are being progressively used for knowledge sharing and record keeping within educational and healthcare institutions. For example, authorized users can access sensitive data securely thanks to methods that are not provided by other digital or cloud sharing platforms. Using a blockchain also reduces the number of intermediaries handling input, while bringing transparency to operations.
Blockchains can also be used to engage employees and communities by combining gamification mechanisms with cryptocurrencies to create an internal economy. Users can gain tokens based on their work and contributions, which they can ultimately spend on perks or activities made available by their organization.
Additionally, human resources is another field that has been significantly impacted by blockchain. Startups like PayFit, Forecast and others cover the whole scope of HR operations, from recruitment to payroll management, by allowing companies to automate recruitment and payroll, and to pay employees in a fast and secure way, all by taking advantage of the power of blockchain.
Blokchain has moved from just being a new trend or buzzword to now playing a major role in a wide variety of industries. Interest from big corporations, such as JP Morgan, Goldman Sachs, Facebook and others, shows how far the technology has come. However, the technology is yet to reach its full potential with concerns over its scalability and a lack of qualified blockchain developers. But one thing is for sure – blockchain is here to stay.