There’s more to Crypto than Currency
Updated: Feb 27, 2022
Blockchain has a pioneering status within the financial landscape, while in this article, Patricia Shevel-Bleikss and Oisin Moriarty aim to look beyond this scope and explore its wider applications in health, governance and art and how its design has been crucial for its success.
Although blockchain is still most associated with cryptocurrencies like Bitcoin, the emerging technology has the potential to offer multipurpose business applications for a range of industries. Blockchain is a secure and encrypted digital database that can be shared by all parties in a distributed network. Blockchain has demonstrated the potential to universally build new solutions to old problems in many areas, especially healthcare, governance and art because in comparison to these industry’s volatile and human-prone error recordkeeping, blockchain offers an unrivalled stabiliser.
So far, the two largest and most prominent variations of blockchain finance are Bitcoin and Ethereum. Bitcoin was designed as a public permissionless blockchain that uses the Proof-of-Work consensus algorithm to verify a new set of transactions. Bitcoin miners try to match the SHA-256 encryption key of the block, with the number of times between the addition of blocks set at 10 minutes. This means that as more bitcoins are mined, the computation gets more energy-intensive. Whilst this ensures the security of the network as there is no way of getting the SHA-256 key, without expending a set amount of computation, it also means energy is wasted (current estimates are on the order of 91 terawatt-hours annually).
This diagram illustrates the successful creation and verification of a new “block”, that in the case of Bitcoin, would be a set of transactions in the Bitcoin currency.
This is why the Proof-of-Stake system was developed, which is now being adopted by Ethereum for their currency and platform. In this structure, validators need to stake at least 32 ETH (currently the equivalent of 2593 USD) and are then randomly selected to verify the block of transactions. While this system is somewhat less secure than the blockchain system and can give more power in the network to wealthier participants, it has the significant advantage of not requiring the same energy-intensive computations of the Proof-of-Work system.
Additionally, within the traditional financial services industry blockchain technology is being implemented to address loopholes in the system as it is currently rife with problems: friction through onerous paperwork and growing opportunities for fraud and crime. 45% of financial intermediaries such as payment networks, stock exchanges, and money transfer services suffer from economic crimes every year. As a tamper-proof technology, blockchain has the potential to drive down transaction costs and times significantly, while increasing transparency and security.
The connection between blockchain and AI can advance the financial services industry further. Nowadays, opening an investment account can take several days, but with a blockchain it can store all customer information in one place, while AI-driven algorithms can quickly analyse that information and make decisions. As a result, financial institutions can offer more secure and more efficient personalised services at a larger scale.
The convergence of blockchain and AI in the future is potentially promising; AI’s ability to handle and analyse unprecedented amounts of data and blockchain’s ability to securely store and share it makes a strong pairing. Microsoft for instance is currently building a blockchain enabling people to collaboratively work on AI models without the need for cloud computing or code integrity. In their paper, they outline a system that uses Ethereum’s smart contracts to verify changes to code, therefore keeping a verified log of all changes.
It’s not only financial transactions that work with blockchain, but any type of data transmission that requires verification. This makes blockchain particularly useful in areas such as Government and Health. Most notably, Blockchain may be useful for modernising voting systems. With a Blockchain online voting system there’s limited concern of hacking as even if one node is compromised, no other nodes would be affected. With blockchain technology voting will become easier and cost less, to around $0.50 per vote, compared to a minimum of $7.00 now. Blockchain is paving the way for direct democracy.
Although there are many benefits to the government utilising blockchain technologies such as automating redundant processes and reducing data leaks, there is still a concern over the privacy aspects in blockchain networks. It’s decentralised nature with an open ledger means that there are no restrictions to its access. With the volume of private data the government deals with daily, the decision to adopt blockchain into the digital transformation of government may need to be questioned, after all, personal privacy is a human right. Governments may need to maintain a blockchain network behind a firewall, assuring the data is kept private with a restricted access control list, even if blockchain has pseudonymous transactions.
Similarly, the decentralised nature of blockchain is a key issue with its adoption within the healthcare sector. For this reason, “private permissioned blockchains” were designed; these blockchains only give verification permission to a set group of users i.e. medical institutions. In a model outlined by MIT’s Media Lab called MedRec, these medical institutions get rewards off patient data for verifying the network, similar to how Bitcoin miners can gain Bitcoin.
However, the scope of Blockchains’ application to health is more limited than many have proposed. The redundancy in Blockchain currently makes it unsuitable for the storage of large amounts of health data such as genetic sequences and health records. However, it can help patients have better access to these pre-existing databases by creating an immutable map of all the databases a patient has interacted with over time. This ability to connect health records is currently lacking in many health systems. Even with design changes, an OECD report done in 2020 concluded the jury is still out on whether this kind of technology will prove effective in both governance and healthcare.
Blockchain has already started to disrupt the art industry by adding an entire new side to the purchasing of digital art through NFTs. The art is connected by virtual deeds of ownership called NFTs (non-fungible tokens). They are unique units of digital data that are stored on blockchains. NFTs lend a tangibility to digital art that hasn't always existed and provides incentives for prospective buyers and patrons.
Blockchain development can also overcome the traditional art market’s severe problem of forgeries. The technology’s records enable art collectors to accurately calculate how many copies of a piece exist, ensuring a reasonable price. This permanent database of art information also increases transparency for buyers, where they can understand the piece’s history, track its prior locations and have a genuine value of its worth. This all increases the number of transactions within the industry.
It’s still early days for blockchain but this technology has the potential to disrupt many industries and, in the case of finance, already has. Blockchain stands to make business and government operations more accurate, efficient, secure and cheap, with fewer middlemen. However, because many of the areas Blockchain is being developed for are already so entrenched (such as voting and healthcare systems where changes can quickly become political) and its implementation is not without its flaws. The next decades will show just how impactful blockchain really will be.