Few people outside of the tech industry have heard of blockchain, which is the technology behind Bitcoin. Many technology experts believe that over the next decade, blockchain will revolutionize how we do business.
Today, almost all business transactions, whether paying a vendor, buying an item on eBay, or trading stocks, take place through an intermediary that verifies, logs, and validates the transaction. For example, in the case of banking, the intermediary is known as a clearing house. This model, which was established long before the internet, has several drawbacks. For one, the middleman takes a piece of the action. For example, exchanging currencies carries a hefty fee. An intermediary also slows things down – think of the last time you deposited a check, and how long you had to wait for it to clear. Finally, this model is vulnerable; if an intermediary is incapacitated, the entire marketplace can grind to a halt.
In 2008, a person or group (it’s not entirely clear) named Satoshi Nakamoto proposed a different way of transacting business. Instead of an intermediary, we could use technology to ensure that every business transaction is verified, logged, and validated. Instead of an intermediary,, all business participants keep a copy of a list of all the relevant business transactions. Then when a new transaction is requested, anyone can log it in the list (called a “ledger”). The ledger would then automatically sync to all the other copies of the ledger. The transaction is verified and validated when a majority of participants record and approve the transaction. Since there is a history of all transactions, and multiple copies of the ledger, the system is less vulnerable to fraud and outages.
While the jury is still out on Bitcoin, the best-known example of blockchain technology in action, financial services companies worldwide, including most major banks, are aggressively testing variations of blockchain to conduct financial transactions. They know that traditional banking models will eventually go the way of the newspaper and the travel agent, and they don’t want to be left behind.