Identity authentication as an enabler of secure trade is just one of the many advantages of the block chain. Equally crucial is its capability to allow more diverse transactions. Both in type and size – than is usually possible with traditional centralized systems.
For generations, businesses have depended upon centralized infrastructures. Such as, payment systems, insurance, delivery and logistics services, governments – to perform commercial transactions and manage risk.
However, these systems were not curated to handle the kinds of machine-to-machine transactions made possible by digital platforms. This is true for both the volume of total transactions and the size of individual transactions.
Single units of data, cryptocurrency, reward points or pieces of an asset are a few instances of assets that are or soon will be tradeable over digital networks. The units may be worth less than $0.01, but they can be traded by the millions or trillions.
Present payment systems cannot cost-effectively and securely process transactions below a certain value. Also, they cannot handle the volume made possible today by the proliferation of mobile devices and networked things.
Businesses need a different way to deal with new digital assets and interactions without involving an intermediary. This way they can collect data on every party in the transaction and take a piece of the value.
Businesses require a novel way to deal with new digital assets and interactions without involving an intermediary that can accumulate data on every party in the transaction and take a piece of the value.
Block chain not only makes new markets possible, it can also redirect existing value flows by reducing the control for bodies.
How does Block chain work?
Block chain facilitates trusted interactions between unknown participants by conjoining five design elements to authenticate users, validate transactions and record that information to the ledger in such a way that can’t be tampered by a single participant or modified after the fact.
Its stakeholders are connected on a distributed network. However, they operate nodes, which are computers that run a program to implement its business rules. Nodes also keep a full copy of the ledger, which updates independently when new transactions take place.
Value is exchanged in the form of tokens, which can represent a wide array of asset types, like monetary assets, units of data or a user’s identity. Tokenization, is the way it represents and facilitates trade in its native value.
Fulfilled transactions are cryptographically signed, time-stamped and sequentially added to the ledger. Records can’t be tampered unless the partakers agree to do so.
It leverages technologies like public and private keys to record data securely and semi-anonymously (partakers have pseudonyms).
No single entity controls a majority of nodes or dictates the rules. A consensus mechanism verifies and approves transactions — eradicating the requirement for a central intermediary to govern the network.
The five elements together make a block chain. All five elements together define and make it.
It’s also crucial to comprehend what it isn’t. For one, it’s not a database — although dealers at times misleadingly describe it as one. Block chains aren’t general stores for information/data.
Reading, writing, deleting, or changing the block chain ledgers is not possible. Most importantly, any central administrator does not control it.
By definition, the fifth block chain element of decentralization facilitates consensus-driven control. A centralized architecture would leave any solution open to the same challenges to which every central system is vulnerable.
The Block Chain Spectrum
Block chain is on a revolutionary trail. It need all five elements, though primary experiments coming to market incorporate only three of the five. Early adopters are excluding tokenization and decentralization, as these are the least familiar and mature from an enterprise perspective. These are called as block chain-inspired solutions.
Block chain-inspired solutions can still add value by digitalizing manual processes. Such as that of real estate purchases, or by facilitating more effective information exchange in multiparty transactions, like insurance claims.
However, block chain-inspired solutions are valuable experiments on the trail to solutions with all five elements. Meanwhile, it will evolve toward solutions that facilitate a wide array of novel digital transactions.
An example of a block chain-inspired solution is the Swedish Lantmäteriet (real estate block chain). It leverages only three of the five elements — distribution, encryption and immutability. In a restricted way and under centralized governance, tokens are sporadically included in the block-chain inspired solution designs.
Block chain-inspired solutions often aim to reengineer prevailing manual processes explicit to an individual organization/industry. Block chain inspired solutions are centralized in design.
Their owners portray them as “closed,” “private,” “permissioned,” “enterprise” and “proprietary.” Few block chain-inspired solutions, have the potential to evolve over time to incorporate tokens and decentralization as design elements.
Several organizations, however, propose their block chain-inspired solutions to remain under central governance. This comprises of the solutions developed by consortia or third parties for use by multiple members of a value chain.
Alibaba, for instance, developed a block chain platform to allow customers to trace the origins of imported foods. Another high-profile example of block chain-inspired initiative is the Facebook-led digital currency ‘Libra coin’.
Block chain Complete
Block chain-complete solutions utilize all five elements, including tokens operating in a decentralized environment. They will start to make market impact in the mid-2020s. To demonstrate their potential, consider the solution evolving at SWARM fund. The nonprofit startup wishes to facilitate individual investors to access investment opportunities. The opportunities that are normally only available to institutions or ultra-high-net-worth individuals.
The SWARM fund model empowers users to purchase tokens. The company then syndicates it into a pool of capital to purchase an institutional-sized stake in the specified asset class. Though the SWARM presently governs the network, the idea is that the network will ultimately operate with a higher decentralization.
Decentralization drives the use of agreements to authenticate users, assets and transactions. It makes sure that not a single partaker can control the fundamental mechanisms of trade or the value produced. One benefit of block chain-complete solutions originates from the way they inflate commercial participation and access.
Enhanced Block chain
As it advances along the spectrum, a number of parallel technology trends are similarly making commercial inroads. Most crucial among them are the IoT and AI. Within a few years, companies will have embedded billions of devices and sensors in their products and infrastructure.
Synchronously, engineers and data scientists are rendering decisions into algorithms to execute autonomously. IoT and AI don’t need it to develop, of course. Yet block chain, IoT, and AI complement each other and could provide shared benefits in the form of more reliable data, more secure transactions and auditable AI capabilities.
The result will be an advanced block chain in which smart, autonomous things join people as participants capable of identifying, creating, transacting and negotiating for digital assets.
The urge to wait and watch how any new technology evolves is strong. But the rapid adoption of AI algorithms and IoT should make clear that there is no time to wait. These technologies both generate and rely upon massive volumes of our personal and business data to operate. As time passes, our data assets are gradually more under the centralized control of a few powerful actors, who then leverage it to produce value for themselves at the expense of the larger economy and society.
Business leaders who aspire a future programmable society in which they can develop collaborations and carry out business with fairness and privacy need to lay the footing for a new economic and social model now.
The platform leaders that presently control the lion’s share of digital value flows aren’t waiting. The financial institutions that manage the flow of money aren’t waiting. The largest insurance companies aren’t waiting.
As a result, no business or societal leader who aspires to influence the terms of engagement for their company or society can afford to wait.