2016 Is the Year of Blockchain

If you’ve used the Internet in the last few years, then you’ve undoubtedly heard of bitcoin, the online currency followed by the billionaires, financial institutions, and the tech ultra elite. But we’re not talking about bitcoin.

While most people automatically think of blockchain when they talk about bitcoin, they don’t discuss it in terms of what blockchain could do by itself. At the end of the day, bitcoin has as much to do with the concept of blockchain as pencil lead has to do with the overall applications for carbon.

Blockchain enables trust among disparate individuals or third parties, and it is transforming the way transactions happen in the Internet age. A blockchain cannot be altered or stolen, so companies that are doing anything on the Internet — whether they are in the U.S., Indonesia, or China — must employ this technology to maintain a mutual trust with their companies, connections, and consumers.

Blockchain as a Foundation

The potential uses for blockchain will impact every single industry. The applications are wide-ranging and enable (previously impossible) levels of trust in data-driven transactions. The world now runs on data, so any method that grants trust in data transactions is a game changer.

Blockchain is as foundational to data and computing transactions as the discovery of DNA was to our understanding of biology. Blythe Masters, CEO of Digital Asset Holdings, has even said that blockchain technology will have a similar impact in the future as the invention of the Internet. And Magister Advisors estimates that large financial institutions will spend more than $1 billion on blockchain in 2016.

The trust established via blockchain allows the secure exchange of data between unrelated sources. This is foundational for emerging technical models, such as the Internet of Things, financial transactions, and legal documents — and will change the way humanity interacts online.

Blockchain is the most important aspect of the next digital revolution, and any company that fails to capitalize on its benefits will be left out and uninsurable, let alone have its business model disrupted, lose a significant portion of its market share, or be wide open to be ravaged by malicious intent. It is extremely important for companies to begin research in this area now to make the most of this technology as it becomes prevalent in everyday situations.

Safe Transactions for a Connected World

Behind all of the math, blockchain simply allows anyone to verify that certain data existed in a specific form at one point in time — the way carbon dating tells us the history behind the earth. This is important because verification is the foundation of trust, especially in a connected world where most parties to a transaction never meet face to face.

In the same way that a financial ledger records monetary transactions, blockchain technology allows us to record data. In fact, it is open to anyone to scrutinize — all transactions are done in front of the public or anyone using that ledger.

And with blockchain, you have a verifiable historical record that is immune to tampering by malicious parties. There is no eraser or any other way of changing history. Once it exists, it is an entry until the end of time.

Some of the industries that will be affected by blockchain (and the ways they will utilize it) are covered below. But this is only the beginning — other industries are sure to follow:

  • Finance and Trading

Blockchain is relatively cheap to maintain compared to large complex financial systems, which is key for anyone running a trading desk. Some derivatives, like options and swaps, still take hours or days to confirm a trade because they don’t have the infrastructure that the New York Stock Exchange has. Blockchain makes that infrastructure accessible and cost-effective, also reducing the time to settle a trade to minutes or seconds.

This will revolutionize the industry, make it more efficient, and guarantee that participants can make a lot more money. It also means that anyone can start running a trading platform, so expect some disruption in the big financial companies.

Financial transactions such as bank transfers and stock purchases currently rely on trusted third-party corporations to verify specific transfers of ownership between two different people or organizations. This verification takes time, often requires human intervention, and is prone to human error and interference. But the framework of blockchain would completely remove the need for that third party.

Blockchain technology allows financial transactions to be almost instantaneously recorded, granting vastly greater efficiency in banking, financial transactions, and more time-consuming trading platforms.

Lastly, while blockchain is often run by a distributed set of users, there are blockchain technologies out there that have different models, allowing many use cases to independently own and maintain a blockchain. In the end, the transparent nature of the technology is creating an opportunity for a complete shake-up in the financial community.

Some of the larger institutions — and certain banks — have already gotten on board with blockchain technologies and will undoubtedly pave the way for other types of companies to roll out the technology in their own processes, giving the power of integrity to the people.

  • The Internet of Things

The IoT refers to the concept of connecting billions of devices, such as sensors or home appliances, to the Internet to give them greater degrees of autonomy and enable semi-intelligent behavior. An example of this would be your air conditioner using the Internet to look up current electricity prices and adjusting its schedule accordingly.

Connected devices in the IoT generally contact a central server, which delivers needed information and monitors activity of those devices. The next iteration of the IoT will see devices contacting each other and interacting with outside vendors. To do this effectively, however, a trust relationship between the devices must be established, and an indisputable record of activity must be maintained.

Trust relationships between devices are now feasible due to blockchain technology, which can maintain an accurate and impenetrable record of the activities of every device in a network. As blockchain and the IoT become more widely accepted, this will have wide-ranging implications for everything from household appliances in the U.S. to game-changing health equipment in developing countries like Cameroon.

  • The Industrial Internet

The Industrial Internet is a real thing — it will maintain machinery (think everything from jet engines to septic tanks) through sensors that run analytics to improve efficiency in our infrastructure. Germany, in fact, is embracing the Industrial Internet to the extent that the government is facilitating its ownIndustry 4.0.

In this world of chemical plants, power plants, refineries, etc., data drives decision-making. Data manipulation happens, especially outside of the U.S., and blockchain allows operations to function without manipulation.

Blockchain is critical for the Industrial Internet — while malcontents may attempt to modify the way devices talk to each other, changes within blockchain are practically impossible. Blockchain’s transparent layer of trust allows for the flow of communication between automated devices. With blockchain as the link between devices, hackers will be unable to disrupt and distort functionality.

  • Insurance

One of the hardest challenges with insurance is measuring worth, or asset value. With data being discussed as a potential capital asset in today’s marketplaces, it will give cyber liability insurance quantitative tools to help the risk of damage or loss. If it exists and is of value, it can be taken or destroyed. Once data has been established as a capital asset, it’s easier to define the worth and the value for underwriting.

But the ephemeral nature of data makes proving its existence, at times, challenging. Blockchain solves this problem by giving insurance companies looking to provide coverage for a wealth of data capital the infrastructure to manage that business.

And on top of that, insurance companies have to protect their customers from the increasing threat of cybersecurity. Blockchain technology creates a level of trust between the insurer and the insured, and it decreases the risk of data breaches.

Insurance buyers and providers currently rely on trusted intermediaries and brokers to facilitate large insurance purchases. In the future, insurance deals may make use of the blockchain ledger to trade risk — with blockchain technology acting as the trusted intermediary and indisputable record of transactions — negating the need for a third-party broker.

A New Year’s Solution

Right now, the world has a significant trust deficit that needs to be fixed. Once we establish that trust, the world can operate commerce in conflict zones that desperately need hope, jobs, and stability. In 2015, the Pew Research Center found that only 19 percent of Americans trust their government. With blockchain, that distrust will dissipate, giving citizens and other countries a ledger to back up the information that people hear from their politicians.

International hackers will have to spend more time and money to steal or alter important information — deterring them from committing the crime — and people will be able to sleep better at night instead of worrying about financial breaches.

And historically, people have had to rely on banks and corporations to establish trust. Blockchain releases that monopoly onto the masses and gives the control to the consumer. Perhaps a radical concept, but this is the change people need to see to regain their confidence among all entities.

Climate change is one of the top discussions around the world at this time. By tracking their processes in a blockchain, countries can demonstrate that they’re actually reducing their carbon footprints — helping people cope with current changes and reducing future emissions. Scientific information has been falsifiedbefore, so the public will have an easier time believing officials with a blockchain behind their words — for the betterment of the world.

In 2016, climate change, political destabilization, and financial disruption are coming at us like runaway freight trains. Blockchain can — and will — help bind and create opportunities for trust and stabilization.

 

This post was written by Daniel Riedel and was originally posted to LinkedIn.

Daniel Riedel is the CEO of New Context, a company founded to help enterprise build stronger infrastructure and software through the Lean Security methodology. New Context has been working with blockchain technologies for several years and continues to drive research and innovation in the sector.

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