Blockchain technology, introduced as the magic behind Bitcoin, is being touted by many as the next major disruptive innovation – in global trade and way beyond.
At its core, Blockchain shifts the accounting function from third-party financial institutions and intermediaries to thousands of nodes (computers) on the Blockchain network that collectively maintain a public ledger of verifiable transactions. Another important function of the Blockchain is that it validates the availability of funds or assets of each party in a transaction. These functions significantly reduce transaction costs and facilitate immediate and direct transfer of funds or assets. According to a recent report from Santander InnoVentures, banks alone could save $15-20 billion per year by 2022 by using Blockchain technology in support of cross-border payments, securities trading, and regulatory compliance.
Substantial investments recently announced by the likes of Goldman Sachs, JP Morgan, and IBM make it very clear that Blockchain technology is here to stay and will undoubtedly disrupt many industries besides banking. Hundreds of online articles identify existing Blockchain applications, but mostly speculate on future use cases, in areas such as: stock trading; smart contracts (legal); voting; academic records; land/property ownership records (public sector); media; insurance; etc.
Blockchain is going to affect all of us before long, so we need to understand its impact on our security and privacy. Importantly, no personal identifiable information is written to the public ledger. Instead, a very long string of characters, which represents an account or personal wallet, is recorded to ledger transactions. Blockchain’s design is inherently resistant to the effects of hackers, though it is not invulnerable. In my estimation, the biggest risk comes from its “permisionless” design in which anonymous computers can participate in the collective maintenance of the public ledger. In fairness, the design is quite sophisticated and even a limited hacking would reportedly require more nodes and/or more computing power than the thousands of good nodes on the network.
It is interesting that IBM announced, just last week, it is launching its framework for using a highly secure and auditable form of the Blockchain technology – that uses a “permissioned” model for network nodes. Certainly, the additional security, backed by Big Blue, will accelerate adoption by their enterprise clients and other organizations and industries.