Everyone has heard of NFTs and cryptocurrencies, but what's interesting is the technology it is built on. Blockchain is one of those disruptive technologies that, if implemented and established, could revolutionize the world economy. A blockchain is a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity. It is an open-source, democratized public ledger system, allowing for transparency and user accountability. For example, the conventional central authoritative system requires human checks and complex approval workflows; however, this structure skips over all of this, making it remotely a permission-less system. According to Satoshi Nakamoto in his 2009 paper, "Bitcoin: A Peer-to-Peer Electronic Cash System," the trustless architecture of blockchain is achieved through three dimensions - network decentralization, transaction dependency, and proof of work. Establishing trust between parties is costly and, most times, a dragged-out process. However, with such distributed ledger technologies, entities can rely on each other without investing resources. In other words, trust is built without any need for it.
Blockchain is not just a platform for financial transactions but a tool that leverages positive elements of a traditional database and reinvents other parts to overcome existing challenges. Where redesigning such systems leads to creativity and innovation. There is a wide range of potential use cases for blockchain technology, which has already been implemented in various fields. For example, the Everledger platform is intended to provide businesses with a safer supply chain management system, as the provenance of assets can be easily traced back through the blockchain. For example, the provenance of luxury goods, such as diamonds, can be tracked to ensure their authenticity and prevent fraud. Decentralized autonomous organizations (DAOs) use blockchain technology to enable decentralized decision-making and governance. This allows for creating organisations that operate by a set of predetermined rules encoded into smart contracts. Online voting systems such as Votem make it possible to for conducting elections resistant to tampering and manipulation, increasing the credibility and legitimacy of elections and promoting greater trust in the electoral process. However, blockchain technology has also received backlash for its perceived lack of sustainability. Critics argue that the energy consumption of blockchain networks, particularly those using proof-of-work (PoW) consensus algorithms, is not environmentally friendly. The recent Ethereum merge, which changed the Ethereum network from a PoW to a proof-of-stake (PoS) consensus algorithm, is an example of the efforts being made to address this issue. The switch to a PoS consensus algorithm is expected to lead to a reduction in energy consumption of approximately 99.95 per cent, as it does not require miners to solve complex mathematical equations to validate transactions. This would make the Ethereum network more sustainable and scalable moving forward.
Adoption into traditional institutions
Blockchain technology has gained traction among traditional institutions and has been adopted by several enterprises. The attractiveness of blockchain technology to these institutions lies in its ability to provide a secure platform for conducting transactions and maintaining records. As a result, companies such as IBM and Hyperledger Fabric have developed private blockchain solutions for enterprises. In addition, blockchain-as-a-service (BaaS) offerings from companies like Microsoft and Kaleido have made it easier for businesses to implement this tech. There have also been a few governments that have had a positive reaction to the adoption of blockchain technology. Estonia, for example, has implemented blockchain technology in a number of its government services, including its e-health records system. Similarly, El Salvador has announced its intention to adopt Bitcoin as a legal tender.
However, not all governments have been as receptive to adopting blockchain technology. Some have been hesitant due to concerns about its regulation and potential risks. A Deloitte survey found that a lack of understanding and trust in the technology was a barrier to adoption for many organizations. There have also been many legal cases involving blockchain technology, such as the ongoing Ripple Labs court case in the United States. In this case, the Securities and Exchange Commission (SEC) alleges that Ripple Labs violated securities laws by selling its cryptocurrency, XRP. There have also been other cases involving blockchain technology, such as the recent FTX case in which the Commodity Futures Trading Commission (CFTC) filed charges against the cryptocurrency derivatives exchange for allegedly engaging in wash trading and prearranged trading.
The bad press that blockchain tech has faced as a result of these cases is detrimental. It is worth noting that the development of blockchain technology was spurred on by the 2008 financial crisis. The current economic uncertainty caused by the COVID-19 pandemic has led to renewed interest in the potential of blockchain technology to address some of the challenges facing traditional systems. Similar to how the advent of the internet has proven to be essential in all areas of our day-to-day functioning despite the initial backlash, further proves that new innovations such as these should be taken with greater seriousness.