Discover blockchain: what it is, how it works and who is exploring it in Australia.
Every so often, a revolutionary technology comes along that changes everything. This is our guide to what you need to know about blockchain technology.
What is blockchain?
The term “blockchain technology” can be confusing. Blockchain is a type of distributed ledger that keeps transparent records of digital transactions. It provides a secure and immediate way of digitally transferring anything of value. Rather than having a central administrator like a traditional database, a distributed ledger has a network of replicated databases, synchronised and spread across a variety of computers in different locations.
Originally used as the tracking mechanism for digital currency bitcoin, blockchain has now been adopted by a wide variety of financial platforms. The use of digital currencies is on the rise and blockchain technology has caught the attention of prominent business, technology and government leaders.
The concept behind blockchain first appeared in 2008, defined in the source code of a Bitcoin white paper released by someone using the name Satoshi Nakamoto. That name Satoshi Nakamoto is widely believed to be an alias for a person or group of individuals whose identities remain unknown.
However, the real identity of blockchain’s inventor continues to be a mystery.
How does blockchain work?
A blockchain distributed ledger contains records held in “blocks”. When a transaction is logged, it is either validated or rejected by different nodes (members in the network). After receiving verification, a cryptographically-protected block gets added to the chain in a linear, chronological order.
New blocks are linked to the older blocks, and the chain is continually updated so every ledger is the same. This gives each node the ability to prove who owns what at any given time. The decentralised and transparent nature of blockchain makes it highly secure and tamperproof. Any slight change in one ledger causes a discrepancy in the entire network. For example, to break into a distributed ledger with 5,000 computers would require you to hack all 5,000 computers at the same time, changing the same piece of information.
Because blockchain is non-refutable, secure, unbreakable and transparent, it also ensures trust between parties. Previous solutions to this problem have required a third-party or intermediary, which usually costs money.
One of the first and most well-known uses of blockchain technology is bitcoin, which is a self-regulated, peer-to-peer digital currency. Blockchain is the technology which enables bitcoin users to transfer currency directly to each other without any intermediaries.
Bitcoin has received a significant amount of negative attention over the last few years for its association with drugs and other illegal activities. While bitcoin’s future remains unknown, blockchain, the underlying technology that bitcoin uses, is here to stay.
Real world use cases for blockchain
Blockchain has applications for a range of industries and services. Remember, blockchain allows the digital transfer of anything of value, so this goes way beyond obvious applications like digital currencies. Potential applications include:
- Electronic voting and voter authentication
- Smart legal contracts
- Peer-to-peer payments
- International money transfers
- Transferring ownership of equities and clearing settlements
- Patient health records management
- Digitally recorded property assets
- Proof of ownership for digital content
Who’s exploring blockchain in Australia?
Australia’s banks and financial institutions are investing significant amounts of time and money into blockchain technology. Australia’s most prominent banks, including Commonwealth, Westpac, National Australia Bank, ANZ and Macquarie Group, have been actively participating in blockchain research groups and setting up innovation labs to study and test possible applications of the technology. They are also investing directly in promising blockchain startups in Australia and around the world.
The Australian Securities Exchange (ASX) is pioneering an attempt to implement blockchain technology in a large scale market. It is the first international stock exchange to test out such a scheme.
The Australian government is also showing a keen interest in blockchain. The 2016-2017 federal budget said the country’s treasury would partner with the CSIRO’s research arm Data61 to study and test use cases for blockchain technology.
Questions you might still have about blockchain
Why should I care about blockchain?
Most people and businesses use intermediary services everyday, and they are all charging hefty fees. Blockchain technology can drastically reduce these fees and save you huge amounts of time.
Another reason you should start caring about blockchain is that it could make your job obsolete. If you work for a company that provides intermediary services, or if you're currently studying to become an accountant, lawyer, real estate agent or any number of other professions, you could be in real danger of losing your job.
What industries could blockchain potentially disrupt?
Blockchain technology could profoundly disrupt hundreds of industries that rely on intermediaries, including banking, finance, academia, real estate and insurance, legal, healthcare and the public sector.
What are the main benefits of blockchain technology?
The elimination of intermediaries brings with it substantial benefits. Banks and Governments for example, often impede the free flow of business because of the time it takes to process transactions and regulatory requirements. The blockchain will enable people and businesses to trade much more frequently and efficiently. Blockchain can also eliminate expensive intermediary fees and provide greater protection against criminal activities like fraud and theft.
Can I use blockchain to transfer real money?
Not yet. At the moment this is only possible with digital currencies such as bitcoin.
How secure is blockchain?
Very. The distributed nature of blockchain provides a new level of protection. Hacking attacks and fraudulent activities that commonly impact large centralised intermediaries such as banks would not be possible with blockchain technology.