Blockchain: Future applications and innovation
May 21, 2020
The blockchain is a cryptography-based technology. The blockchain allows cryptocurrencies such as Bitcoin to circulate securely, without the need for intermediaries such as banks or payment services.
The blockchain in a nutshell
Payments made with a bank or payment service all pass under the control of these entities, who control their safety and correctness.
In this case, the payment network is made up of a series of users who are all connected to the same service, which oversees all transactions.
In the blockchain, what replaces the intermediaries, i.e. the bank?
Everyone and no one! The Bitcoin network is made up of devices connected directly to each other, and they all control each other. No one device has more authority than the others.
Before going further into the technicalities, let’s answer the most practical questions:
What problems does the blockchain solve, and why should it interest me directly?
Tip: If you’ve never heard of the blockchain, take your time.
If you don’t understand everything right away, don’t worry, it’s the same for everyone.
Today, trust is at the basis of almost everything we do, in slightly different forms: when we make a bank transfer or open a mortgage, we trust the bank; when we book an Airbnb or buy second-hand clothes, we trust the website, the e-commerce website or the app; when we buy organic products or products sold as sustainable, we trust that this is indeed their origin; when we go to vote, we trust the vote-counting system.
This trust can be problematic in some cases since it is well known that to err is human.
The blockchain removes the need to trust a financial intermediary, or potentially any type of intermediary. Independence from intermediaries means reduced costs, no geographical or time limits, speed and immunity from censorship or government policies.
All this is made possible by its decentralised and cryptographic structure, which makes the information stored in it immutable, traceable and verified.
In this way, the blockchain puts money, resources and policies back in the hands of their owners, the citizens of the internet.
All participants know what is happening on the blockchain without violating the privacy of others.
Not only do they not need to trust anyone, but they can also have a say in how a given blockchain or service changes over time.
Speaking of trust, it is interesting to note that during the years of the pandemic, trust in financial services dropped dramatically around the world, while the value of the trust placed in cryptocurrencies has only just begun to emerge.
Removing the middleman from money transactions may seem irrelevant to many, but it represents a breakthrough for others.
The most obvious case is that of people who often have to send money to relatives who live abroad (remittances), especially outside Europe, and who have to wait days and pay very high fees to do so, including currency conversion charges.
The same can be true for companies that collaborate with distant partners and which could thus optimise their processes. Or consider certain investments made using complex financial instruments that have to go through a broker, with all the relevant access barriers. Also tools of this type can be reimplemented on a blockchain and made more accessible!
Blockchains, however, are not particularly restricted to their application to payment systems; they can regulate any kind of information exchange in the same way as a contract or software does. In fact, being pure cryptographic code, they have the advantage of being programmable.
Moreover, most of the blockchains that exist today are open source, which allows for composability, i.e. the possibility for any developer to take the code of a protocol or application on the blockchain and use it to more easily create their own application.
This is why blockchain is a disruptive technology: it is capable of decentralising and automating a vast number of applications, services and platforms in the most important sectors of the economy.
Yet the change it implies is so radical that it takes a long time to implement.
Just as the internet started locally as a niche tool, also the blockchain needs time to get established. Just think about where we were when bitcoin was born and how many applications we have today, not even 20 years later. For example, you may have heard of NFT: this is also an application of the blockchain.
Let’s see what happened in more detail.
From an innovation perspective, the blockchain has many points in common with the internet and to better understand what it will be used for, we could make comparisons with the change that took place in the 1990s.
The internet is based on a protocol called Transmission Control Protocol/Internet Protocol (TCP/IP). This protocol was actually created in 1972 when it served only one application: a primordial form of email that enabled ARPAnet researchers working for the US Department of Defence to communicate with each other.
During the 1980s, an increasing number of companies such as NeXT, Hewlett-Packard and Silicon Graphics adapted this protocol to create local networks for private use.
It was only in the mid-1990s that the World Wide Web, a set of “interconnected networks” (internet) open to all, found widespread adoption anchored on TCP/IP. If we think that at least 30 years have passed from the basic protocol to the internet as we know it, how long could a widespread adoption of the blockchain take?
The blockchain – an internet-based peer-to-peer network – was introduced in October 2008 as part of the bitcoin proposal, a virtual currency system that does not require a central authority to issue currency, transfer ownership and confirm transactions. Bitcoin is the first application of blockchain technology.
Before 2008, the blockchain existed only as a prototype, assembled only 17 years earlier, in 1991. As with the birth of the internet, therefore, we are talking about decades. There are several steps forward from 2008 to 2022, most of them in recent years:
- Blockchain-based applications
- Scalable and interoperable blockchains
- Decentralised finance (loans, decentralised exchanges, liquidity mining)
- Usability of certain blockchain applications
Problems of usability, scalability and interoperability remain despite success stories and trials.
So, if we want to talk about blockchain adoption at the mainstream level or as a massively deployed alternative, it will take at least another decade.