An Absolute Beginner’s Guide to Blockchain – Part 4
Welcome to the increasingly inaccurately named Absolute Beginner’s Guide to Blockchain, Part 4.
I’ll start by summarising where we are and what we have covered so far, but if you aren’t sure you understand it please go back and read the earlier sections.
We now understand that it is perfectly possible to create a system where we can send someone a digital transaction we call a coin, and for that “coin” to have measurable value. The system is secure, almost impossible to cheat, and completely removes the need for an authority figure to approve the transaction.
We already understand that in practice this means we can send each other money without the need for a bank. And it doesn’t take a vast amount of imagination to see that the millions of people around the world who are unable to access professional banking services could benefit massively from this.
Currently if you want to send a fiat currency transaction to someone on the other side of the world then you either have to pay handsomely for your bank to do it for you, or if you (or the recipient) don’t have a bank account you have to use a money transfer system like Western Union, who also charge their own not inconsiderable fees.
If, however you send them Bitcoin you pay nothing more than the 0.0001% of a coin or thereabouts as a proof of work fee.
That by itself is revolutionary enough, but it’s only scratching the surface of what can be done.
A different way of thinking
Assuming you are still with me, I want to ask you a question, and then explore where the answers might take us.
Are you ready? Because this is where it gets interesting.
What is to stop us from taking the “coin” we are sending, and splitting it into a million different pieces? And then instead of just having each piece be a bit of code that represents a part of a “coin”, make it a piece of code that can actually do something?
Remember that every transaction we have talked about is nothing more than sending a file from one place to another. What started in Part 1 as an image of a spider suddenly becomes a vast repository of information. And the system doesn’t have to change at all for that to happen.
Can you think of anything you do on the internet that does not involve the sending of digital information from one computer to another?
We already have secure encryption built into the system, so it’s perfectly possible for me to encrypt a file in a way only you can decrypt and send it to you via the distributed ledger. More interestingly it is also perfectly possible for us to create a transaction that is in effect an active process.
If “a” then “b”.
Which starts to sound a lot like both a simple piece of code, and also a contract.
A contract that, just like the transactions we discussed with Bitcoin, is completely immutable, protected by high level encryption, and exists without the need for anyone to enforce it.
The possibilities are endless.
The Music Industry
Let’s look at an example.
If you buy a song from iTunes for $0.99 only $0.09 goes to the musician themselves. For their cut Apple provide a platform for people to view your song, process the transaction, and then deliver the file to the buyer.
If we had a blockchain that was dedicated to music then we could build a simple contract system that automatically delivered an encrypted file that only you could decrypt, on receipt of a certain amount of value. A tiny percentage of this value would go to the miners who create the proof of work on the blockchain, all the rest would go straight to the artist themselves.
You might think that musicians already earn quite enough thank you very much. And in regard to the very tiny percentage of massively successful artists you may well be right. But there are literally thousands of incredibly talented musicians out there making really very good music who can’t make enough money to live off because the current system is set to reward the big companies. The very middlemen blockchain takes out of the equation.
On the current system a musician needs to sell over 12,000 songs a month through iTunes in order to earn the same wage as a McDonalds employee. Those same 12,000 songs bring in $10,000 a month per song that does not go to the artist.
I don’t know about you, but I don’t think that seems completely fair.
However cutting out the middleman in online retail isn’t really the most groundbreaking use of this technology.
In 2013 it was discovered that several large supermarket chains across Europe were selling beef products that actually contained significant amounts of both horsemeat and pork from completely unidentified sources.
This demonstrated as clearly as possible that the current system for food supply chain record keeping was deeply flawed. On inspection it became clear that it was a matter of relative simplicity to falsify the records, and it was only through DNA testing of meat products that the issues were brought to light.
The application of a blockchain to the food supply chain would immediately and permanently solve this issue. With the record at each stage being committed to an immutable distributed ledger. Each and every food item can be traced back through every stage of its journey from the farm to the table.
Do you own a house? If so, how can you prove that? Do you have possession of the deeds? Or does your mortgage company? If you request a copy from the land registry then they send you exactly that. A digital image of a scanned original document.
In reality that image has as much value as the image of a spider we talked about in part 1.
The land registry is now supposedly all digital. Ownership changes, mortgage records and so on are all kept in a database maintained by them.
The registry performs the same function as the bank in our financial transactions. They authorise and record all of our transactions.
Blockchain technology could take them out of the equation.
Property ownership can be recorded in our immutable, publicly distributed set of records. Surveyors reports, planning permission for extensions, buildings insurance claims and more can all be added to the same register. Not only taking the need for a land registry away, but also the time consuming and specialist searches a solicitor does prior to a purchase or Mortgage offer.
I’m sure you are beginning to see now that this technology can be transformative. Any system that requires records to be kept can be kept more securely without the need for a middle man by using blockchain technology. Medical records, educational qualifications, scientific research and medical trials are all prime examples of systems that would function well on a blockchain.
But that’s not the whole story.
Web hosting on the blockchain with instantaneous DNS, immutable file storage, and an immutable record of every single code change ever made? Perfectly possible.
Fraud free elections with individual voter identification maintained in a truly secure manner? Simplicity itself.
Digital identification? Unbreakable contracts? Passport control? Birth and Death Registry? The limits for what we can do with Blockchain technology are only placed by our imagination. The truth is we don’t truly know how this will impact on the world, only that it will.
The exciting bit is seeing it happen in real time.
You’ll probably be glad to hear that this is the last episode of an absolute beginner’s guide to blockchain. If you have made it through all 4 parts, then you are not even close to being an absolute beginner.