Understanding blockchain technology
Today’s article attempts to answer basic questions about blockchain technology, what it is and what it can and cannot do. The article has been prompted by comments on my previous article published in The Herald.
Block chain is not the same thing with Bitcoin and cryptocurrency. Bitcoin and cryptocurrency use the blockchain technology. The mix up between blockchain and Bitcoin could have been the fact that blockchain technology was used to enable Bitcoin as outlined by International Trade Centre.
The price volatility of the Bitcoin that globally grabbed the headlines in 2017, blurred the line between the cryptocurrency and the application of the blockchain technology.
Indeed, the hike from US$20 billion to US$200 billion within a year grabbed the global news headlines about the Bitcoin, hence the mix-up that followed.
Bitcoin is a cryptocurrency and should not be mixed with the technology that enables it, which is the blockchain technology. Blockchain technology remains a digital conduit that provides safety, confidence and transparency in that sector.
The owners of the innovation remain anonymous, however, this group of individuals used a pseudo name Santosi Nakamoto.
International Trade Centre posits that blockchain has been in existence for over 40 years!
Computer scientists, mathematicians and cryptographers have been continuously developing the technology for use in other areas such as international trade.
The Harvard Business review in an article about the history of blockchain technology predicted that every financial institution would embrace this technology of which 15 percent were going to be banks.
Blockchain is made possible through different technologies and it is part of the distributive ledger technology (DTL). Through cryptographic means, data is captured on the DTL and is accessed by peers in the chain of transactions and in this way the information is decentralised.
The data that is captured is immutable and no new information can be added without following the pre-set rules on how information is captured.
Manipulation of the data is almost impossible.
The above attributes simply mean that through the distributed ledger technology where identical copies of information are generated, verification of documents is relatively easy, inexpensive and without involvement of third parties.
McKinsey & Company conducted a detailed study on the merits and demerits of blockchain technology.
The study also delved into the strategic value of blockchain in different sectors.
Blockchain has been over-hyped and it is still yet to mature once its trajectory of success has been clearly mapped.
Furthermore, it has been criticised of its inherent ability to finance illicit business activities not to mention the astronomic consumption of energy some applications use.
While these challenges mitigate against investment into blockchain technology it is important to remember that this technology is continuously being developed.
For blockchain to deliver strategic value, companies and governments need to grab the moment now to discuss regulatory governess issues, ensure the blockchain technology complements the existing ecosystem as determined by laid down standards.
As articulated in Harvard Review companies and governments need to be aware of what blockchain cannot do as business model.
The amazing attributes of blockchain are largely dependent on the ‘last mile’ a term used in the article.
This is a bridge between the digital record and a physical individual, device, business or event. At some point humans have to be part of the chain and therein lies the problem.
Immutability and verification could rely on a record that could have been erroneously captured.
In the context of advertising blockchain cannot give detailed specific data on the humanness and integrity of a targeted group of buyers.
This is an algorithm deficiency that might also perpetuate gender inequality.
However, the immense advantage of algorithms to businesses cannot be watered down.
Studies remain unanimous in that blockchain is the solution to slow, costly and unpredictable trade.
According to the WTO study trade costs can be 134 percent tariff on a product in developed countries and 219 percent tariff in developing countries.
The short-term impact of blockchain technology is on trade related costs as well as time constraints.
Verification of documents is time consuming and costly.
Through blockchain technology trust is heightened among trading parties through the decentralised distributive ledger technology that readily provides authentic information.
The incorporation of smart contracts enables seamless automation of processes that deliver immensely on cutting costs.
Significant costs reduction can be immediately observed within the shipping sector. WTO studies puts the reduced costs within the shipping sector at 15-30 percent of total costs.
The World Economic Forum reported that blockchain technology when adopted by countries will generate trade to the US$1trillion in new trade in the next 10 years (ITC).
Evidently the onset of blockchain technology needs to be embraced fully after taking into consideration of its merits and demerits.
This technology is set to impact international trade positively while improving on inclusive trade that recognises the role of MSMEs and women in trade.-herald.c.zw
