Blockchain has become the defining tech buzzword of the last few years. Most of us have heard of Bitcoin, and for many that’s the first thing that comes to mind when we read about the blockchain.
But in fact, blockchains have huge implications beyond Bitcoin, and at every level of the economy. So what is the definition of a blockchain – and, importantly, what might it mean for small businesses?
A blockchain is a system of distributed ledgers used to store records of transactions. Think of it as a database, but instead of storing a single version of the database on one computer or server, everyone involved in the blockchain has their own copy.
Records of transactions are stored on the blockchain chronologically, and they are theoretically impossible to change. All the information on the ledger is publicly available.
The most famous blockchain is the one that’s used for Bitcoin, the cryptocurrency. But in fact you could have an infinite number of blockchains – for example, there’s one for the currency Ethereum, one for Litecoin, and thousands of businesses and governments around the world are building or already using their own.
The blockchain is so named because it consists of a series of ‘blocks’. As transactions are completed, new blocks are added to the chain. Whenever a blockchain user logs on, they receive an updated version of the ledger. The blocks serve as ‘proof’ of the completed transactions.
But as blockchain technology develops, new applications are being explored. The most important of these is known as a ‘smart contract’.
Using a smart contract, blockchain participants can cause one of a potentially infinite number of actions to occur. Smart contracts can consist of any machine-readable information, and they can be executed automatically when specified conditions are reached.
Smart contracts are currently being used for a huge variety of applications. For example, in the music industry, blockchain developers are using smart contracts to track songwriter information and make sure rightsholders are paid when their songs are used in commercial settings or played in DJ sets.
You can write virtually any logic into a smart contract. Say you’re one of those songwriters. You might specify that one of your songs can be used for adverts, but only if the advertiser fulfills certain criteria – for example, you might choose not to allow your work to be used on ads for tobacco or alcohol. Advertisers can see the specifications you’ve made, and then they can license your song automatically on the blockchain, without the need for paperwork, signatures, or even other humans.
Blockchains have a number of key advantages. They are theoretically immutable with the computer power available to any one party, although it should be noted that there have been a series of security failures on individual blockchains.
Transparency is another important asset; as the information on every transaction is publicly available, everyone on the blockchain knows what’s happening at every stage.
Finally, the most important principle is that of distribution. By ensuring that everyone has a copy of the ledger, blockchain technology eliminates the need for one controlling party, meaning that decisions about the future of each blockchain is made by consensus rather than by diktat.
Blockchains have a huge number of potential applications for small businesses, some of which have already materialised.
A company in the States, for example, is using blockchain technology to track the provenance of seafood from the fisherman to the restaurant table, meaning that consumers have a clear picture of where their food is coming from.
In the arts, blockchains are being used to make sure that creators are properly credited and paid for their work, and to minimise the need for big, unwieldy royalty collection agencies.
But perhaps the first place we’re likely to see the mass adoption of blockchain technology is in the banking sector. All of the major banks are already experimenting with the technology, while new entrants are close to launching blockchain-based lending services. The idea is that these offerings will be much more secure, and potentially far cheaper for borrowers as they will remove the need for much of the expensive, slow back-end infrastructure that the big legacy banks currently rely on.
At Simply Business, we’re learning and experimenting with blockchains too, and hackathons are a great way to break, build, and test your way in.
From 21st to 23rd July 2017, we’re running Break The Block, a blockchain hackathon for the insurance industry. We want to investigate new ways to use blockchain technology to make insurance fairer, quicker, and simpler for small businesses.
Interested in joining us, or want to keep up with the hackathon’s progress? Read more on our Break The Block page, or follow along on Twitter using the hashtag #BreakTheBlock.
And if you find yourself bitten by the blockchain bug, you could also consider The Blockchain Competition, whose theme this year is blockchain for insurance. Hurry, though, the competition closes at the end of July!
“Bringing teams with great ideas together is a great way to spur business forward - and help build an ecosystem as well," Says Blockchain Competition 2017's Project Coordinator, Ian Simpson. "The Blockchain Competition offers teams with a great blockchain idea the chance to win \$100,000, free office space, plus professional coaching from experienced entrepreneurs - all the things they need to grow."
What do you think of the future of blockchain? Let us know below.
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