What is Blockchain?
Blockchain is a decentralized network of computing units called nodes that facilitate peer to peer transactions without the need for a third party or a larger centralized server to facilitate or validate those transactions.
Currently, a trusted third party like a bank,lawyer or a government body is required to validate transactions, such as a legal contract or a financial transaction. However, blockchain changes the game by allowing the two entities to transact directly, removing the need for this third party. Using cryptography to keep exchanges secure, blockchain provides a decentralized database, or “digital ledger”, of transactions that everyone on the network can see. Blocks of transactions are verified by computing units on the network by solving complex mathematical puzzles in exchange for a small reward. Once validated, a block is added to the ledger of past transactions (the blockchain), which is publicly available to view.
Blockchain fulfills two needs fundamental to any financial transaction or legal contract. Firstly, it secures transactional data because a verified transaction cannot be changed without redoing the proof of work for all prior transactions on the blockchain. Secondly, it removes the need for trust between parties. Through smart contracts, ownership rights to an asset can automatically be transferred to an individual after fulfillment of all of the contractual obligations. The potential uses of smart contracts are almost limitless: collecting taxes, buying goods on eBay, selling real estate, or enabling migrants to send money back to family overseas. Blockchain could also help to reduce fraud because every transaction is recorded and distributed on the ledger for anyone to see.
How is it going to disrupt industries?
We can imagine a future where all transactions are completed using blockchain without the intervention of expensive and time-consuming third parties. Eliminating the third party may sound like a small change, but it means disrupting entire industries like banks, law firms and public sector organizations who largely exist in order to act as intermediaries.
The emergence of Ethereum has opened up the opportunity to build decentralized applications (Dapps). Ethereum is a platform and programming language for building and publishing distributed applications. Rather than being a blockchain, or a protocol running over a blockchain, Ethereum is a platform that acts as an underlying infrastructure that can run all blockchains and protocols, rather like a unified universal development platform. There are a number of startups who are taking advantage of this infrastructure and working in different areas with the goal of replacing existing systems with ones based on blockchain. So far, 977 decentralized apps have been created using ehtereum that fulfill a wide range of needs from social media to file sharing. A number of trading platforms have also been created to facilitate the trading of cryptocurrencies. The need to safely store cryptocurrencies has given rise to the concept of hardware wallets, currently being developed by Nano S and Blockchain Mind. And in the data storage space, Storj and Filecoin are facilitating decentralized peer to peer storage to replace centralized cloud storage.
Potential Opportunities for the Consulting Industry
The potential to implement blockchain at enterprise level is creating demand for the technical and domain expertise required to integrate the technology across different business lines like retail, public sector, aerospace, mining, oil, and gas. This opens up opportunities for existing consulting firms who have in-depth domain expertise to hire a team of blockchain experts in order to create a customized solution tailored to a particular sector. Also, IBM has come up with a Hyperledger architecture which enables the creation of a private blockchain network, where all the computing units involved need authorization to access the network. This technology could replace the existing centralized servers in all major enterprises.
Business models of incumbents in industries like banking might change entirely in order to survive the disruption created by blockchain. Consulting firms can offer strategic expertise to help existing firms identify new revenue streams and perhaps re-define entire business models.
Recently, there has also been a surge in the number of blockchain based startups. These start-ups are mostly run by technical teams who lack business expertise. Backed by venture capital, these startups will also require assistance to craft strategies for growth and long-term sustainability.
More and more startups are raising funds by issuing tokens through Initial Coin Offerings (ICOs) which are much less regulated in comparison to IPOs. There has also been speculation that companies like UBER and Telegram might also get in on the action by issuing their own tokens. It is possible to imagine a future in which every firm is an economy unto itself, with tokens being its local currency, much like chips in a casino. The value of each firm’s tokens will be based on demand and supply, essentially meaning that the price of tokens will be governed by the principles of economics. If this comes to pass, every company will require expertise in economics to craft the right fiscal and monetary policies and to monitor and control the price of its tokens. Also, the regulatory issues involved in dealing with ICOs will require legal expertise. These possible eventualities could open up new opportunities and business lines for consulting firms.
For any technology to succeed, it needs to become widely adopted. And the technology needs to provide a benefit or incentive that leads people to start adopting it. E-mail provided an early incentive for initial adoption of the Internet. Similarly, experts believe that wide-scale use of cryptocurrencies like Bitcoin and Ethereum will be one of the first layers of adoption for blockchain as it provides the incentive to transfer value faster and more cheaply across the globe.
There has been a lot of speculation that bitcoin is merely a bubble that will eventually burst, and there is no doubt that there has been a lot of blind investment in blockchain based technology startups, much like internet startups before the dot com bubble. But, whatever happens to Bitcoin, the underlying technology itself is here to stay. It will continue to disrupt industries, and create opportunities for those who are ready for it.
Mudassar Shaikh is a Blockchain and ICO consultant at BlockChain Mind.
Image: Flickr
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