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Blockchain technology has the potential to drastically change our society. Whether you are a civil servant at a ministry, province, or municipality, a member of an innovation group, or simply curious about blockchain, this article is relevant to you. In this article, we introduce blockchain, explain how the essential functions of the 'trusted third party' are automated through blockchain, and discuss the implications of this.
If you want to learn more about blockchain, sign up for the Dialogic Blockchain Series below and stay informed about the developments.
What is blockchain?
Trade is a fundamental pillar of the economy and society, with global transactions being made. Traditionally, these transactions are recorded in separate, often closed, accounting systems. Traditional trusted parties play a crucial role in enabling and approving transactions, similar to the role of a notary. This is also the essence of Bitcoin. The Bitcoin software allows a network of computers to maintain a joint ledger via the internet: a digital ledger that is fully distributed across the network. This is what we call the blockchain. The blockchain contains all transactions with associated data, timestamps, balances, and owners.
How does blockchain work?
Each node in the network holds a full copy of the blockchain. Transactions are verified by so-called Bitcoin Miners who maintain the ledger based on complex mathematical principles. These principles also ensure that the nodes continuously reach automated consensus on the state of the ledger and each transaction within it. If an attempt is made to manipulate a transaction, consensus is not reached, and the network refuses to include the transaction in the blockchain. Therefore, each transaction is public, and thousands of nodes consistently agree that the transaction occurred undisputedly at a specific date and time, akin to having a notary for each transaction. This provides everyone with one shared source of truth, ensuring the reliability of Bitcoin.
Are there drawbacks?
With the advent of cryptocurrencies like Bitcoin, individuals worldwide can trade with each other without the involvement of traditional third parties such as banks, notaries, accountants, and governments. However, a significant consequence is that regulation cannot be enforced (directly).
There are also some other less positive aspects associated with blockchain, particularly concerning energy consumption and efficiency. In this regard, blockchain is only necessary when parties truly do not trust each other, or when there is an incentive for manipulation by a potential central administrator.
The widespread application of blockchain technology is still in its infancy. Before strategic and progressive decisions can be made in this area, governments and businesses must acquire the right knowledge and consider various factors. Legal and regulatory frameworks remain a significant obstacle. Uncertainty and inconsistency in (inter)national legislation surrounding blockchain can hinder the implementation of this technology, making it potentially more expensive. Once legal frameworks are more established, more companies will take concrete action. Guidance from FINRA (Financial Industry Regulatory Authority) could facilitate progress in this direction.
What are the applications?
89% of executives in the financial services sector suspect that blockchain will become an integral part of the strategy and business formation of banks by 2026. The execution and processing of a transaction can be securely decentralised, offering efficiency benefits. Insurers also see potential in smart contracts, which enable transactions between a customer and a company without the involvement of a third party.
Potential applications of blockchain technologies exist not only in the financial sector but also in healthcare. Apart from securely sharing patient information and billing between healthcare institutions and insurers, there is potential to better ensure data integrity within clinical trials. Blockchain technology prevents the manipulation of research results because the stored data is fully distributed within the network and cannot be altered.
There are many other domains where blockchain offers interesting possibilities. For example, 'earmarked funds' such as subsidies and vouchers could be effectively managed with blockchain. Also, areas like CO2 rights and patent registrations are suitable for blockchain application. In the case of the latter, for instance, sharing of unpatented intellectual property can be facilitated in the pre-stage by registering the invention in the blockchain. Privacy permissions can also be managed via blockchain, allowing individuals to specify which party can or cannot use certain data.
How does the Netherlands fare in blockchain technology?
"Netherlands has everything it needs to become the European Silicon Valley of financial technology," says Rutger van Zuidam, e-commerce entrepreneur and founder of IntoBitcoin.com (now: IntoBlockchain.com). "Netherlands can position itself exceptionally well compared to the US and UK, which currently lead the way. The technology behind cryptocurrencies like Bitcoin plays an essential role in seizing these opportunities."
Curious to know more?
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If you have questions or are curious about what blockchain can offer you, get in touch with Tommy van der Vorst.