In the diamond industry, around 1 million precious stones are being digitized to prevent fraud. Each diamond will have a unique fingerprint, identifying its origin and tracing its history. From the mine, it came from, to the jeweler’s shop window. All made possible by blockchain technology.
The blockchain is a new way to store and record transactions. It’s very much like a traditional database, but the blocks are linked together cryptographically in order to make sure that they are tamperproof. Blockchain technology was invented in 2008 to create a digital currency.
The primary example that people are familiar with is probably Bitcoin. People are using it as digital cash. But actually, people have started to use it more and more for things like their last will and testament or to declare that a diamond isn’t a blood diamond, or even for sharing data.
Each block in a blockchain is computer code containing some form of information, such as a contract, certificate of ownership, a statement of authenticity or proof of a bank’s financial transaction. But each block of information in this computer database is securely connected, or chained, to the other through a digital signature. If you are trying to send money to relatives it can take 3, 5 or sometimes more days to move the money. And that’s because we have to be very certain about where the money has gone to.
Before, technology didn’t allow us to do that quickly and cheaply. With this technology, it would be faster and cheaper. And it would be more secure because the bank has to digitally sign it and would have an audit trail of every transaction that’s ever happened. As new information is added the length and complexity of the blockchain increases and the computer database get bigger with more people a part of it. But if someone makes an unauthorized change everyone else in the chain can see where it happened and agree whether the change is valid or not.
For example, you and I could decide that I was going to buy your house for £1,000. And instead of hiring a lawyer we could decide to register that onto a blockchain. We would record a contract onto the blockchain that would indicate I have agreed to add £1,000 today so that I could buy your house. It would give you a public ledger that would be transparent so that anyone could see that I had agreed to pay. I couldn’t go back at a later date and change it to be £500. And we could also do things like transferring the ownership through the title deeds. And that would all be publically registered in the blockchain.
A distributed ledger is something that allows us to produce a tamper-proof record of transactions onto a public ledger. It’s very similar to how an accounting ledger works. But the idea behind a distributed ledger is that we get rid of the middleman. We can use distributed ledger technology to help fishermen, for example, in Scotland to prove the provenance of a piece of salmon.
We could say that it was definitely farmed at this time, from this lake, and in this particular fashion. And that could all be recorded transparently onto a distributed ledger, which anyone would be able to track. Everyone can have an identical copy of a distributed ledger. This database of assets is shared across multiple sites. While nothing is invulnerable to cyber attack, hacking it is extremely difficult.
If you had a distributed ledger with 1,000computers on it and you had stored a contract into that ledger, and someone wanted to come in and hack and change some of the information, in order to do that they couldn’t just hack your computer, they would have to hack every single other person’s computer at the same time, and change exactly the same piece of information.
The technology could also help small-scale farmers. For example, by registering the availability of their products on a blockchain, it could allow them to create economies of scale to guarantee a supply chain to large scale customers. Within government, there are a number of potential applications for distributed ledgers that could revolutionize the way it works and the delivery of public services. I believe this technology will have a foundational impact on the way our society runs, on the way our government runs, the way that we interact with one another not just in economic transactions but on a day-to-day basis.
I think blockchain technology is at least as significant as the development of the internet. If the internet brought us near-instant digital communication, then blockchain brings us near-instant digital asset transfer, asset movement and security of data movement.
That’s really, really important to everything in financial services, anything with property or ownership, which is massive for the economy.