ESG's Mike Leone discusses the background of, and use cases for, Blockchain
Read the related ESG Blog: Blockchain Progresses in the Enterprise IT Space (Video)
Hey everyone, Mike Leone here from ESG and I'm here to talk about blockchain. You've probably heard of blockchain or Bitcoin, maybe you've gone deeper and heard about Ethereum. But oftentimes, the conversation comes back to a higher level. I can't tell you the number of people that come back and say, "Yeah, great. That doesn't matter to me so I don't care." I'm here to say you should care and here's why. Blockchain is a disruptive technology that can and will change the way we do things. And let me be clear, this is not just Bitcoin. Bitcoin, as well as thousands of other cryptocurrencies, leverage blockchain as the technological foundation. This represents a single use case in the financial industry where blockchain can help deliver and supply the management of a digital currency.
Is cryptocurrency the most widely adopted use case? Absolutely, but this is slowly changing, especially as an increasing focus is being put on blockchain use cases outside of digital currencies. One such example is Ethereum, which takes the concept of a digital currency a step further by allowing developed applications to interact with the blockchain and execute contracts called "smart contracts." Now, this is another video in and of itself so back to why blockchain matters to you. The answer revolves around three core pillars, decentralization, consensus, and security. We've long dealt with issues related to centralization, think governments, banks, insurance companies, credit bureaus, technology vendors, etc. Each of those entities serves as a primary holder of valuable personal data, our finances, our memories, our security, and protection.
What happens if something goes wrong at any one of those entities? What happens if your bank is hacked, your identity is stolen? Blockchain and decentralization allows you, the consumer or the true owner of that data, to control your own destiny in a sense. You no longer need to rely on a single entity that you're forced to trust to serve as the middleman or worse, a preventer for you to complete and exchange a transaction. Through a globally distributed set of nodes, think peer-to-peer but with a fully encrypted, impossible to hack foundation, blockchain provides a publically available and controlled mechanism to complete exchanges or transactions without a middleman. Don't trust a bank, the government? Blockchain will, and in some cases, already can address that lack of trust.
Going hand in hand with decentralization is the concept of consensus. Traditionally, centralized approaches rely on more than one entity to confirm a transaction. For example, when making a payment by credit card at a local gas station, a cashier swipes the card but it does not go right to your bank. It goes through multiple hops from the merchant to their bank, to the credit card company, and then to your bank. And with each hop, there is another fee. And you may trust that this process works but you don't necessarily trust everyone involved, the cashier or the gas station, or the bank the gas station uses.
While this approach can be quite fast, it falls short in flexibility, freedom, and security. With blockchain, a transaction is made between two parties with no middleman. That transaction is then verified and validated by the public, not a centralized entity, across a global peer-to-peer network. Once validated, the transactions are distributed to all the other peers in the network. And eventually, when enough peers agree and confirm that the transaction is valid, the entire network provides a majority consensus of the truth through every node having an identical copy of the blockchain.
And just a side right here, being publically available means more transparency. While there is some anonymity in the sense that you may not know the actual person or entity who is transacting, the transaction itself is visible and available on the blockchain. In other words, there is no counterfeiting. And the last pillar why blockchain will impact our lives is around security. Security is top of mind across all aspects of our lives. It seems like there is word of a hack that impacts thousands if not hundreds of thousands of people on a regular basis. These hacks occur most frequently, if not always, on a centralized entity, Target, Equifax, Yahoo, Uber. As of right now, the underlying blockchain technology is unhackable. Once a transaction is completed, validated, confirmed, added to a blockchain, and distributed across the network, that transaction, as well as every transaction before it are permanent. They're unable to be changed.
The takeaway here is that blockchain technology is more secure, enables trust between traditional untrusted parties, and enables the elimination of potentially unsecured entities involved in the transaction process. The traditional world we know and love still has technical challenges. And as new technologies become available that can positively impact that status quo, it's important to embrace the potential. Blockchain is here to stay, not just as the underlying technology of Bitcoin and other digital currencies, but as a way to free limitations and address challenges in other verticals like supply chain, digital rights, healthcare, real estate, just to name a few. Make sure to check out my "Blockchain 101" video that dives into the technical aspects of how the technology actually works.