Chances are you’ve heard of blockchain technology and how it is likely to change the way the internet – and likely the world – runs, especially in economic terms. But do you know what blockchain actually is and how it works?
This article will inform the average internet user on how blockchain technology operates, and its potential uses. While the techies are off to look for more purified blockchain information, the rest of us can learn together what blockchain technology means to you, and the possibilities for its utilization as an economic game changer the world.
What is Blockchain Technology?
Blockchain put simply is information that is distributed, but not copied. It exists in the open ether of the internet, instead of resting in a specific server. Because of this, blockchain information is impossible to break into, making identity theft – among other things – much more challenging to carry out. Remember when the central information systems of Equifax and Target retail stores were compromised? That will likely become a thing of the past, thanks to blockchain. But the potential for this technology does not stop there.
Originally developed to facilitate cryptocurrencies such as BitCoin, blockchain is a digitized and decentralized record of online transactions of a specific currency. Each time that currency is used, another file is added to the chain, creating blocks of information that enable anyone to keep track of transactions without the need for central records (such as the aforementioned Equifax databases).
Once the technology was put into place, developers soon realized there was a great deal of potential in practical use; large international corporations are already experimenting with the technology to generally favorable results. However, secure online transactions are only the tip of the figurative iceberg.
You’ve heard of mortgage lending websites that aggregate information and offers from the major banks to get you the best possible deal. Once a preferred lending institute is picked by the user, the process then goes to direct interaction between that user and the institution; in other words, the traditional paperwork, applications, periods of waiting for approval as well as the actual mortgage transfer are carried out, and the mortgage is backed by a single entity.
But what if…?
Benefits of Blockchain Technology
Imagine you have an account with an online portal that deals with mortgage offers or online title loan lending. But instead of a list of potential lenders consisting of about ten to fifteen, you simply apply for a loan, and it is approved on the spot. The interest rates are not just fair, but an outright bargain compared to the larger banks. You accept the offer, sign an online promissory note, and start making the scheduled payments at the designated time. The money may be transferred directly into your bank account, or it may merely exist in your portal account.
And who’s backing the loan? Could be a single financial institution, or it could be an entire group of them, or individuals and governments; all of whom contribute to the loan and who will be repaid via your payments to the portal service site. Sounds impossible, but it’s all made possible by blockchain technology which keeps track of each contributor, of the loan amount itself, of your payments, of the transfers; everything having to do with the process, and all of it secure.
Why do we mention governments? Because it means third world countries can invest directly in lending with the potential of making back their money plus interest without having to open and operate a national bank. It also makes real money stronger, allowing those countries with weaker currencies to play at an international level.
The mortgage scenario described above is just one possibility. Imagine business and corporate venture capital, auto loans, the sale of new and developing technology without having to first have manufacturing infrastructure in place.
Could Blockchain Technology End the Middleman?
Imagine the middle man going the way of the horseless carriage.
Blockchain technology will likely open doors to new methods of doing just about anything. Like that slick new electric sports car you saw on the auto maker’s website? Consider the idea that you could custom order a model that will be constructed when your order is processed, and your auto loan is transferred to the manufacturer all at the same time. That kind of process was impossible before blockchain, mainly because there were too many different entities involved and the record keeping was a digital nightmare.
But it’s possible now because documents can be digitized and inserted into blockchain records and once established, those records are impossible to alter. Note that modifying a file and updating it are two different processes. Once the chain is found, it is verified by the multiple sources using that particular blockchain, instead of having to be verified by a single source (like, say, Equifax).
Still skeptical? Here’s the technical bottom line: when a blockchain is established (usually via transaction record), it is encoded with what’s called a ‘cryptographic hash’; a unique identifier that interacts with previous as well as future links in the blockchain record. When a new entry is made, it must conform to the prior chain of information. In short, the existing blockchain will authenticate whether or not a new entry is valid, making it a secure line of transactional data. Blockchains can be updated, but never altered due to this process, making records virtually indelible.
In short, no one can change the books.
It’s likely you are already using blockchain technology without knowing it. Imagine what you can do now that you’re aware of it.