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Transforming Business Transactions with Blockchain Technology

Blockchain

Blockchain technology has the potential to transform everything from banking to government over the
next few decades, and could potentially be the next generation of the Internet. It has the potential to
cut out the middleman – no more bankers, no more lawyers and no more commodity intermediaries. By
utilising self-enforcing smart contracts that execute on the basis of a certain set of conditions being met,
parties would be able to rely on certainty of funding with automatic payment once the terms of the
contract have been met. In addition, with transactions being recorded in real time there would be no
need for delays due to a review of multiple parties or the need to be physically transferred.
There is a lot of hype around blockchain, with some commentators promising that will significantly
reduce fraud, complexity and the cost of many everyday business transactions. Because blockchain
technology does not rely on a third party to establish trust but rather complex computer coding and
mass consensus, it allows for the transfer of almost anything of value – stocks, currency, title deeds and
even identity and votes.

Blockchain Enabled Business Disruption Ahead

Since its entry into our lives, the internet has radically transformed how businesses and their customers
interact, resulting in a new way of doing business. However, despite these advances, there are still many
areas of the business chain which remains ‘offline’ and requiring human input. However, with
blockchain, there is potential that the way business is done will be revolutionised once again.
Due to the potentially disruptive impact of the blockchain it has begun to attract significant investment
and attention. All of the world’s major financial institutions and most of its large technology companies
are investigating and researching the potential that blockchain technology could have on their
businesses. In addition, there has been huge investment in blockchain startups in recent years, with
ICO’s (Initial Coin Offerings) reaching unprecedented levels, both in terms of the number of launches as
well as the money being invested.

So What is Blockchain Technology?

Also referred to a decentralized ledger, blockchain technology first came intoexistence as the technology
behind Bitcoin and is being utilised in an increasing number ofcryptocurrencies. However, it is only in the
past couple of years that the eyes of the world have begun tofocus on the technology powering Bitcoin rather
than the currency itself. Just as the internet was neverintended to be used as a platform for e-commerce or
social media, blockchain’s origins is unlikely to hold it back from its destination.
By offering a distributed, transparent and immutable ledger, blockchain creates trust in a transaction.
Described as being to trust as what the internet is to information, blockchain allows for transactions that
traditionally had low levels of trust between parties and were therefore inefficient and costly, to now be
created in real time. It allows counterparties to reach agreements without needing to have a pre-
existing established relationship to create trust. They don’t even need to know of each other’s existence
directly.
The technology behind blockchain is based on a peer-to- peer network of computers called ‘nodes’ that,
once combined, create a decentralized, distributed digital ledger. Once recognised by the network of
nodes, a transaction is recorded in a ‘block’ that are added to a chain of blocks. The chain records details
including the sender and receiver pseudonyms, date and time of transaction, asset type and quantity.
Once entered, no one entity has control to amend the recorded transaction. Any transactions recorded
on the blockchain are available to everybody to view, meaning that fraud without detection would be
virtually impossible. This transparency and immutability is what creates the trust between the process,
and it means transactions can be completed with fewer human steps, less costs of a lesser likelihood of
error.
Blockchain technology also allow for the development of smart contracts that would exist on the
blockchain. These contracts would be digitally signed, computable and self-executing, thus reducing the
need for intermediaries other than a software program.

Blockchain Adoption Speed

There is a lot of buzz around blockchain and experts consider its development to be occurring
considerable faster than internet technology did in the mid-1990s. Companies such as Ethereum and
Microsoft Azure are already providing blockchain applications while post-trade companies have been
focusing on streaming the processing of transactions through blockchain.
There are still a number of uncertainties and obstacles surrounding blockchain. For starters, the
significant amount of electricity needed to power the blockchain is a matter for both governments and
environmental activists to consider. Meanwhile, governments are still working out a way to try and
regulate the industry in order to try and prevent crime from thriving on it and in order to ensure that tax
is paid on transactions that are largely anonymous.
However, these would appear to be just blips in the road. The sheer amount of money pouring into
blockchain technology and research suggests that it is only going one way. It is important that
institutions likely to be affected by it, for good or for bad, be aware of its effect in order to plan
accordingly

About the author

Jason Manolopoulos co-founded Dromeus Capital Group in April 2008 and is the co-CIO of the firm. Jason leads the firm's investment activities is a member of the Firm's Executive and...

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