The blockchain is a fully distributed, cryptographically secure database. The author Dan Tapscott announced, “The technology likely to have the greatest impact on the next few decades has arrived. And it’s not social media. It’s not big data. It’s not robotics. It’s not even AI. You’ll be surprised to learn that it’s the underlying technology of digital currencies like Bitcoin. It’s called the blockchain.”
When people talk of “the blockchain”, they normally use the term as a shorthand for a class of tools called ‘Distributed Ledger Technology’ (DLT); a common convention that we also follow here. What the blockchain can do is keep a record of a transaction across multiple computers in a network, meaning that this record is secure and cannot be hacked with any known technology. It also means that the network is the record and by implication the record-holder. There is no intermediary and hence no costs associated with the upkeep and profit of intermediaries.
A blockchain is understood to be a ‘public record’ – everything is visible, every change is tracked and nothing is hidden. This is indeed true and key for its application and value in some circumstances (e.g. legal ownership of a house or a company). Yet the concept is flexible – a firm might also develop a blockchain visible to employees but not to the outside world, as might a community or even a family.
Tapscott gives a provocative example of the potential of the blockchain. Consider land-rights. He points out that 70% of landowners in the world have only a tenuous title to their property. These are poor people whose assets are vulnerable to the whims of dictators or malevolent institutions. The insecurity of land ownership means that investment is not possible and that the asset-holder cannot use it as an asset in the local economy. Using the example of the mass abuse of land rights in Honduras, Tapsott cites Hernando de Soto, the Latin American economist, who says that security of land rights “is the number one issue in the world in terms of economic mobility, more important than having a bank account, because if you don’t have a valid title to your land, you can’t borrow against it, and you can’t plan for the future.” The blockchain – an immutable public record – will provide protection for land rights, meaning that populations can be made more secure, that they can invest and even borrow against assets. As Tapscott says, “this creates the conditions for prosperity for potentially billions of people.”
Blockchains are linked to cryptocurrencies like Bitcoin, Ether, and Litecoin. These currencies are enabled through these distributed ledgers as they provide a record of the transactions of the coins (e.g. how much Bitcoin is owned by an individual) and blockchains also supply coins as a means of payment for cryptographic and other necessary services.
The entrepreneur and political scientist Bettina Warburg links the potential of the blockchain to the economics of uncertainty. Uncertainty is important because it gives rise to institutions of many sorts (e.g. banks exist to remove uncertainty from financial transactions, notaries verify document authenticity and exchange etc). As the blockchain manages uncertainty in a secure and distributed way – every transaction is shared on a common record – then there is an alternative to the bank, or the notary, or whichever intermediary that a trade relies upon.