Blockchain Revolution in 40 bytes

Blockchain technology could change our world more than the Internet itself. No one owns it. But everyone can use it.

by Lukas Hadorn 26 Oct 2016

Illustration: Eboy

You’ve probably already heard of the cryptocurrency Bitcoin. It’s a form of digital money that’s neither printed by central banks nor distributed by financial institutions, but is created and managed autonomously. The technology behind it – blockchain – is less well known. Blockchain allows the creation of digital currencies that can be used as a means of payment all around the world without a single bank being involved. But how exactly does it work?

We can imagine blockchain as a kind of giant archive, or an enormous database in which transactions are recorded and can be verified forever, by anyone. Blockchain is not a central system that belongs to a particular company or organization. Anyone can record a piece of information – such as a transfer in a cryptocurrency like Bitcoin – in the blockchain. The information is then linked together in chains of 40-byte data blocks, hence the name “blockchain.”

Constant transparency

The blockchain’s transparency and accuracy are guaranteed by its decentralized structure and a cryptographic process that verifies information before storing it. This process is visible to anyone and is always validated by several parties, which prevents manipulation.

“Blockchain could be to banks, insurance companies and land registries what Wikipedia was to encyclopedias,” predicts Reto Gadient, founder of B.ACADEMY and initiator of the first Crypto Summit 2.0 in Zurich. “It’s an extremely cheap and secure alternative method for irrevocably defining, validating and securely trading ownership of assets such as money and land ownership, as well as identities, patents and image rights.” The idea of linking transactions to conditions, using so-called “smart contracts,” is very promising. A rental car would only start up, for example, if the leasing fee had been paid.

Emerging countries first to benefit

The banks are taking this development very seriously. They’ve formed a consortium called R3 in order to research options for using the technology. However, “Swiss bank customers won’t see any immediate changes in their direct contacts with their bank,” Gadient believes. “Blockchain will probably catch on first in countries where the need for a functioning infrastructure is the greatest; in other words in developing and emerging countries.” That’s why the UN and various non-governmental organizations are also extremely interested in this new technology.

Where and how quickly blockchain will become established is still totally unclear, Gadient says. “The technological infrastructure is there, but there are still regulatory, organizational and cultural hurdles to overcome.” In some ways, the situation is reminiscent of the 1980s, he explains. “People guessed back then that the Internet would change things, but they had no idea at all what that would really mean.”

 

Payment methods through the ages

  • 1023 – The Song dynasty in China issues paper money due to a shortage of copper.
  • 1887 – Science fiction author Edward Bellamy coins the term “credit card.”
  • 1981 – American Airlines launches its frequent-flyer miles, turning loyalty into a kind of currency.
  • 2009 – A global, decentralized payment system is established with the creation of 50 Bitcoins.
  • 2020 – Sweden becomes a cashless country.
  • 2050 – Social currencies dominate, reputation is more valuable than numbers. 

Finance lab

UBS is playing a pioneering role in relation to blockchain. It has established a fintech innovation lab in the offices of the accelerator Level39 in London, where a team is experimenting with disruptive technologies such as blockchain. The objective is to explore the potential of the technology and its applications for the financial area.