Over the past five years, blockchain has become a household term. Popularized by its use in cryptocurrencies such as Bitcoin, blockchain technology will soon revolutionize the finance industry. However, its functions and ability to permanently record exchanges of information can be applied to other industries, changing how individuals, companies, and governments interact with one another.
To fully comprehend the potential of blockchain, one must first understand what it consists of.
Blockchain is an online database that stores information in a collection of ‘blocks’ that are ‘chained’ together. Every time the database receives a new entry of data, it is stored in a new block. This block then connects to the previous block of data, creating a chain of data blocks.
Unlike regular databases that store all their information with one owner in one location, blockchain stores its information in servers across its network. These servers are known as nodes. The information stored in these nodes is owned by different individuals and groups around the world. Since all the information ever stored on a blockchain is available on each of these nodes, using each other as a reference, blockchain’s transactions are permanent and decentralized.
While seemingly simple when broken down to its main functions, blockchain is a complex and revolutionary form of data storage.
As you can imagine, this impressive database requires a significant amount of hardware. As of January, Bitcoin developer Luke Dash Jr. estimated that Bitcoin has approximately 83,000 active nodes for its blockchain operations. The cost of equipment and further energy to power these servers is astronomical.
According to the Bitcoin Energy Consumption Index, the electrical energy needed for a single Bitcoin transaction could power over 1.1 million VISA transactions. This same amount of electricity could power the average American household for over 59 days. When annualized, the electricity consumption of Bitcoin is comparable to that of Sweden.
Largescale electricity consumption naturally means that one of blockchain technology’s principal challenges is ensuring that its power is sourced from renewable sources, or else it can be argued that the rise of blockchain can only come at the expense of the environment.
In response, there is increasing pressure on operations built on blockchain technology, like Bitcoin mining, to be powered by renewable energy. In turn, as third parties are provided with further incentives to harness sustainable energy, the supply of sustainable energy sources can be expected to grow.
As the energy industry evolves to cater for the demand for blockchain technology, other industries are starting to implement blockchain into their operating systems.
Blockchain can record the transaction of anything with value. Its application extends beyond cryptocurrencies, to the registration of everyday goods, property, legal documents, fiat currencies, and even votes. As an automated, decentralized database, blockchain eliminates the need for third-party trust organizations – such as banks, estate agents or law firms – improving the efficiency and consumer costs involved in any transaction.
Blockchain has limitless potential across countless industries – but is presently most widely used in financial services. Banks such as Credit Suisse are utilizing blockchain technology to settle US stock trades, with Goldman Sachs and Citigroup also experimenting with means to provide key services without the use of a middleman.
Similarly, companies in the hospitality industry can utilize blockchain technology to encourage direct business-to-consumer purchasing, reducing costs by eliminating the use of third parties.
Beyond recording transactions and for the provision of consumer services, blockchain could soon digitalize democratic voting. Using end-to-end blockchain, individuals could safely cast their vote without fear of it being altered. It is no exaggeration to think that the consequences for transparency in elections could alter the course of human history for the good.
As the advantages presented by blockchain technology becomes increasingly evident, we will only see demand for its application grow – whether from companies, governments or individuals – in people’s capacity as both consumers and private citizens alike.