The economist blockchain technology consumer
Blockchains, also known as distributed ledgers, consist of multiple online registers in which transactions can be recorded. Each transaction is tied to the previous one and verified through the use of cryptography. This series of transactions makes up the blockchain.
Since they are distributed, blockchains can be shared by multiple parties, creating a system of verified transactions and ownership. This avoids the need for reconciliation of transactions and provides a proof trail for auditors. Meanwhile, it promises to cut costs and lower the risk of fraud for consumers. Blockchains have multiple potential uses. The virtual currency Bitcoin is the most talked-about; the ownership and supply of Bitcoins is controlled and verified through distributed ledgers.
But this is only the tip of the iceberg. Microsoft provides a powerful cloud platform on which to run blockchains, as well as middleware that makes it easier for startups, established banks and other companies to build blockchain services that meet their specific needs.
Blockchain usage raises some regulatory and policy issues. In Europe and the U. This regulation is timely and much-needed. We have already seen Bitcoin used for illicit transactions on Silk Road and as the payment mechanism of choice for ransomware.
Meanwhile, consumers were harmed by the collapse of the Mt. Gox bitcoin exchange in There are two types of costs blockchain could reduce for you: Every business and organization engages in many types of transactions every day. Each of those transactions requires verification. In many cases, that verification is easy. You know your customers, your clients, your colleagues, and your business partners.
Having worked with them and their products, data, or information, you have a pretty good idea of their value and trustworthiness. The marketplace slows down and you have to incur additional costs to match demand and supply. You can transfer value from here to anywhere on the globe at almost zero transaction cost.
Sending secure messages that carry value does not require a bank or PayPal in the middle anymore. And the friction of the transaction is reduced, resulting in cost and time savings.
Using a blockchain can also reduce the cost of running a secure network. This will happen over a longer timeline, Catalini says, perhaps a decade. The internet has already allowed for a faster, less stilted exchange of goods and services. Blockchain technology could mean greater privacy and security for you and your customers. Catalini calls it data leakage. In a business transaction context, Catalini says, a blockchain could be used to build a reputation score for a party, who could then be verified as trustworthy or solvent without having to open its books for a full audit.
Which industries could blockchain disrupt? The potential applications include lower settlement risk, more efficient taxation, faster cross-border payments, inter-bank payments, and novel approaches to quantitative easing. Imagine a central bank stimulating the economy by delivering digital currency automatically to citizens. The risk is too high, Catalini says. But expect to see smaller, developed countries with a high tolerance for technology experimentation lead the way and possibly experiment with a fiat-backed, digital currency for some of their needs.
The busiest area of application so far, blockchain is being used by companies seeking to offer low cost, secure, verifiable international payments and settlement. They wanted to see what would happen and generate interest on campus. Catalini, together with Professor Catherine Tucker, designed the experiment and studied the results. While 11 percent immediately cashed out their bitcoin, 49 percent were still holding on to some bitcoin.
Some students used the funds to make purchases at local merchants, some of whom accepted bitcoin. Others traded with each other. Meanwhile, startups around the world competed to become the consumer trading application for bitcoin. Then PayPal bought Venmo, a payment platform that trades cash.
The bitcoin-based consumer payment industry cooled down. But the application of blockchain remains attractive because of the lower costs it could offer parties in global, peer-to-peer transactions. Web browser company Brave uses a blockchain to verify when users have viewed ads and, in turn, pays publishers when those same users consume content. What if, instead of subscribing to a news site online, you paid only for the articles you read?
As you click through the web, your browser would track the pages and record them for payment. By reducing the cost of the transaction and verifying the legitimacy of parties on either end, blockchain could make these micropayments, new types of cross-platform subscriptions, and forms of crowdsourcing possible and practical. Users can never completely mask their transactions. But others are trying. Zcash promises to be a fully private cryptocurrency.