Also known as a distributed ledger, blockchain is a form of shared database. This shared database creates a transparent and permanent record of all transactions, all of which are distributed across the users in the network. Any and all changes to the data are seen by the users, which encourages and promotes resilience and trust.
Blockchain technology can help to manage and find solutions to many of today’s data challenges, such as creating digital IDs for each user for improved identity management. But what is the future of blockchain technology, and how will blockchain change the world?
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Before The Future of Blockchain Technology…What is Blockchain Today?
Blockchain 1.0 emerged less than a decade ago and provided the underlying technology for Bitcoin, the first cryptocurrency delivering a digital transformation to transactions. With blockchain 1.0 being a simple ledger only recording transactions in sequence, this was a simple state machine that didn’t address complex business requirements.
Around mid-2015, six years after blockchain 1.0, an improved blockchain architecture, blockchain 2.0, was born as Ethereum was launched, for a faster and streamlined transaction validation process. Blockchain 2.0 evolved to perform a wide variety of tasks, with Ethereum providing a state machine plus code type of network, called smart contracts.
Through the injection of smaller applications into blockchain technology, Ethereum allows for Bitcoin’s cash-like tokens to represent more complex value units such as bonds or loans. Today, blockchain can be represented by transactions between users, providing authentication, confidentiality, and integrity between senders and receivers.
Blockchain can be applied for factors such as the logging of data and events. These logs can include shipping records, medical, or food data, providing a higher level of traceability.
- User X wants to make a transaction with user Y.
- Online, this transaction is represented as a “block”.
- This block is then broadcast to every part in the network.
- The network users approve the transaction as a valid transaction.
- After being approved, the block is added to the chain as a transparent and permanent record.
- The transaction is made between users X and Y.
As pieces of computer code, smart contracts can monitor, execute, and enforce agreements to ensure credible transactions are properly performed without a third party. First proposed in 1994 by Nick Szabo, smart contracts aim to deliver safer transactions to traditional contract law and to reduce any transaction costs in contracting.
Smart contracts are trackable, irreversible, immutable, and distributed. They can’t be changed, broken, or tampered with and everyone in the network validates their outcome. These transactions allow smart contracts to have several implementations within blockchain networks and projects, such as Bitcoin and Ethereum, and add to the future of blockchain technology in businesses. Providing a credible alternative in both transactions and business relations, smart contracts’ properties of transparency, decentralisation, and fraud resistance offer several benefits.
- Cost efficient. Without the need of third parties, additional fees are removed. Businesses and their customers interact and transact directly with low to no fees.
- Trustworthy. The business agreements are immutable and unbreakable, alongside being executed and enforced automatically.
- Direct transactions with customers. Businesses and customers have direct and transparent relationships due to intermediaries being unnecessary.
- Recorded. Stored in chronological order, transactions are kept in the blockchain and are easily accessed alongside a complete audit trail.
- Resistant to failure. The absence of third parties ensures that there isn’t a single entity controlling money or data. This decentralisation translates to a functional network without integrity or data loss, even if anyone leaves the blockchain network.
- Fraud prevention. Being stored in a distributed blockchain network allows for smart contracts to ensure funds or data can’t be forcibly released, with other users in the blockchain spotting and invalidating the attempt.
Digital Identity Management
Identity security is one of the most problematic issues resulting from the internet age. Even though businesses are diligent in protecting private information and identities, no system so far has proven to be foolproof.
Blockchain technology, however, can provide an astounding level of security through independent verification processes. User computers on a blockchain network undertake these processes. With Bitcoin, for example, the verification processes approve transactions before adding them to the chain – but these processes can easily be applied for identity management.
Improved end user experience, meeting global privacy and identity requirements, reducing or eliminating unneeded compliance steps, and providing improved security to end users are only a few benefits of blockchain-based processes for identity management.
Decentralisation of Data
In contrast with the early days of the internet in which a centralised world was exciting, this system has come to highlight inherent flaws over time. For the future of blockchain to be successful, the decentralisation of data will allow for more than just a central party managing the design of a network. Peer-to-peer interaction in a blockchain network will bring several benefits for companies:
- Decentralised networks composed of independent nodes; their supply can be easily increased as a network load increases.
- Centralised networks fail and crash, which often cause both millions in losses and service disruption. The decentralisation of data eliminates single points of failure.
- Democratising decision-making allows for decentralised systems offering an inexpensive, robust, and scalable solution. Users have the power instead of service providers monopolising the systems.
Finding solutions to address the issues of decentralisation can help to circumvent or even solve these challenges. A few possible solutions are:
Innovative trust solutions. The use of secured hardware and verifiable computation can be used to provide trust over the majority of system nodes. Additionally, certified programming and formal verification should also be considered to add mathematical proof that a blockchain implementation is meeting its specifications.
Democratisation of mining power. Specialised mining software is one of the key factors contributing to a skewed mining power. As it outperforms personal computers on mining energy efficiency and mining power, it has become an expensive investment. ASIC miner manufacturers and big mining farm owners, for example, end up controlling these systems. Designing ASIC-proof hashing algorithms can be a solution to democratising mining power.
Scaling smart contracts. Runtime and programming models need to be redesigned for a successful scalability of smart contracts. The introduction of new programming primitives can make parallel executions of these contracts a possibility. The runtime needs to improved to allow for the support of the parallel execution of the contracts, while maintaining the transaction order and guarantees.
A report by Deloitte underlines how slow and expensive the transfer of value is in today’s world, particularly payments undertaken across international borders. Multiple banks in multiple locations are typically needed when different currencies are involved before the recipient collects their money.
Although services exist to aid in facilitating this process, cross-border transfers can be quite expensive. With blockchain technology, financial institutions and other major businesses are able to create direct links between each other. This removes the need for correspondent banking.
The future of blockchain technology would allow for an unrestricted online marketplace; users would sell products or services without having to pay any fees or relying on a centralised organisation to oversee the transactions. This translates to an extremely fast and cheap alternative to how cross-border payments are done today.
In addition to providing real-time processing of transactions, blockchain can reduce the money remittance costs from as high as 20% to around 2%. Cryptocurrencies will require proper regulation and to address security concerns, but this factor remains one of the most exciting blockchain benefits.
Blockchain technology still needs to keep evolving to meet the ever-growing needs that major businesses have. Blockchain 3.0 is emerging to help address issues that the first and second generations couldn’t. Factors such as privacy, high scalability, sustainability, governance, and interoperability. Projects such as Logos, COTI, and IOTW are only a few of the many faces of blockchain 3.0.