The blockchain technology, with its first iteration in the form of the cryptocurrency bitcoin, is a unique technological breakthrough that is a revolutionary gateway to a new era of decentralised banking, money, clearing, stock markets, insurance and even social networks and national governments.
Whilst Bitcoin itself is gradually becoming better known and more widely used, it's the underlying ‘blockchain’ technology within the bitcoin protocol –that is now gathering increasing attention for its ability to support far more complex transactions and relationships than pure value transfers.
Bitcoin was invented and released as open source software by Satoshi Nakamoto (an assumed name) in early 2009, setting out a plan for a (new) form of ‘money’ based on “cryptographic proof instead of trust".
Five years on, Bitcoin and other ‘altcoin’ cryptocurrencies that have since emerged, provide reassurance that the Blockchain technology is sound and robust and has potential application in financial services and many other areas of commerce and society. In time, blockchains will power many radical, disruptive technologies. The blockchain breakthrough means that in theory, any area of online commerce, social network, and other offerings can now be decentralised and its controlling authority eliminated. This will be the Blockchain Revolution, although in practice it will no doubt be evolutionary.
What do we actually mean by a blockchain? A blockchain is the name given by Satoshi to his invention of a decentralised ledger of all transactions owned and monitored by everyone, but ultimately controlled by no-one.
The blockchain transaction database is actually shared by all nodes who choose to participate in the Bitcoin protocol system - a shared and ‘evergreen’ public ledger that prevents making the same transaction twice, (ie. no double spending). Each and every new block of transactions contains a hash of the previous block, creating a 'chain of blocks' - ie. a Blockchain, from the first 'genesis' block to the current block. The blockchain public ledger includes every transaction ever executed from the beginning until the latest transaction.
So can the Blockchain protocol create a better and more cost-effective and decentralised financial services? Ethereum, an open-source project, is looking to provide the platform and the answer. And not just for financial services.
Ethereum will achieve this by replacing the ‘electronic cash’ unit bitcoin, with a programmable unit, called a smart contract. Real world contracts are enforced by the courts, but smart contracts are ‘enforced’ by the Ethereum blockchain network and can interact with other smart contracts to construct increasingly complex Decentralised Applications, or Dapps.
What sort of services could be powered by a decentralised general-purpose blockchain like Ethereum?
With the proposed Ethereum blockchain decentralised application platform, everything from perhaps the next generation cryptocurrency will appear, ranging from data storage to land and other asset registries, trade reporting, clearing systems and exchanges, consolidated tapes, personal insurance blockchains, smart insurance contracts, crowdfunding, corporate voting, identity blockchains for anti-fraud protection, tax registries, name servers, accounting registries, multi-entity contracting, and even virtual contract companies.
Also Digital Autonomous Organisations (DAO's) or Digital Autonomous Corporations (DAC's) whose share ownership is recorded in a Blockchain in the cloud and not under the regulation or control of any single sovereign government - just like the Internet (and Skype, although it is centralised and owned by Microsoft)
The blockchain could also be used to record contracts between free individuals, and enforcement mechanisms coded in to create self-enforcing 'Smart Legal Contracts' - a system for building encoded law that bypasses nation states.
Also of particular interest is the potential for societal change engendered by users regaining control over their own personal information and data instead of third parties like Facebook, Dropbox, Airbnb and Credit Agencies (eg. Experian). A Blockchain decentralised eBay type auction site could also emerge with no centralised authority and much cheaper to operate.
Presently, blockchain systems are complicated to use. But soon, they won’t be. And then, new developers and the masses will swarm towards them, creating an exciting and refreshing world of decentralised, liberating and cost-effective applications (Dapps) that we barely recognise.