What is Blockchain Technology and What Problems Does it Solve?

What is Blockchain Technology by Rhian Lewis

Every time some new form of technology is developed, the hype machine swings into action, promising that this latest innovation will solve everything from government inefficiencies to world poverty.

Along with AI and machine learning, we're hearing a lot about blockchains. So what is blockchain technology, this mysterious protocol that underpins cryptocurrencies such as Bitcoin? We don't have time to go into a deep and meaningful explanation, but if you're curious about how Bitcoin works, this great explanation from Andreas Antonopoulos conveys the idea more meaningfully than I can in a few paragraphs: http://bit.ly/Andreas-Antonopoulos-blockchain

Essentially, a blockchain is a method of record-keeping where transactions and events can be recorded in such a way that they cannot be deleted, and (in the case of public chains) where these transactions can be viewed by anyone. 

Think of it this transparency as the difference between an Excel spreadsheet on someone's laptop, and a Google spreadsheet, where the information is accessible by anyone. Of course, this does not at all go into the intricacies of the technology which make the information immutable and secure, but it starts to give an idea of the advantages of using it.

So here are three examples of sectors where blockchain solutions may be useful:

Payments without banks

Before blockchains, plenty of people tried to invent digital cash, but could not crack the conundrum known as the 'double spend problem'. By this we mean proving that each unit of electronic cash you own has been used only once. This is why, until now, digital payments have gone through banks and used cash provided by national governments.

When Bitcoin was invented in late 2008, this problem was solved at a stroke. With good reason, Bitcoin and other cryptocurrencies are known as 'the internet of money', allowing direct payments to intermediaries anywhere in the world without having to involve or trust a financial institution.

Insurance without insurance companies

Insurance originally began as a pooling of resources between friends or neighbours to cover unexpected bills such as medical charges or funeral costs. Individuals would pay into a pot and then benefits would be disbursed as needed. In the days when people lived in small communities, it was easy for members of these circles to see that claims were genuine.

As insurance became taken over by corporate interests, big companies had to hire loss adjusters and claim assessors to prove that when insured individuals made a claim, that it was a genuine case. Insurance costs rose to cover the huge cost of these new employees, huge data centres, sales teams and advertising. And the temptation to defraud or to inflate a claim became greater, as it was no longer possible to see with your own eyes that other people would suffer from having to pay higher premiums as a result.

Blockchain technology provides the infrastructure for people to set up their own mutual insurance schemes, entirely backed by data, without the need for human intervention. Etherisc, for example (https://etherisc.com/), is an insurance product which uses flight data to pay out instantly in the case of a delayed flight. Read about it here:

Supply chains

Huge container ships laden with containers of good from China heading towards Europe are a common sight in our ports, carrying everything from toys and clothes to machine parts and other industry essentials.

Often, these goods will travel through multiple countries before arriving at their final destination. But companies often do not trust other companies to fulfil an order accurately; countries may not trust companies to declare fully their tax and customs liabilities; and finally, countries may not even trust other countries to apply the same standards to goods that have been legislated in the destination country.

One container ship can generate as much as 2kg of paperwork by the time it has been signed off by multiple organisations. Competing organisations are working on blockchain-validated solutions for shipping, which will ultimately allow for fully automated shipments, with all records updated by sensors writing information to a shared blockchain.

If all of this sounds like science fiction, then maybe it is. But blockchain technology is one of the most exciting technical developments of our lifetime – ignore it at your peril!

Author: Rhian Lewis (twitter: @rhian_is)
Hear Rhian Lewis talk about blockchain technology at The London Group network on 27th June 2018.