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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, it is important for you to read on. In this article, we will introduce you to blockchain, explain how the essential functions of the 'trusted third party' are automated through the blockchain, and discuss the implications of this.
If you want to learn more about blockchain, sign up below for the Dialogic Blockchain Series and stay informed about the developments.
What is blockchain?
Trade is a fundamental pillar of the economy and society, and worldwide trading takes place. This is traditionally recorded in separate ledgers that are often closed. Traditional trusted parties play a crucial role in this. They enable transactions and approve them; much like a notary would do. This is also the essence of Bitcoin. The Bitcoin software enables a network of computers to maintain a shared ledger via the internet: a single digital ledger that is entirely distributed across the network. This is what we call the blockchain. The blockchain contains all transactions with relevant data, times, balances, and owners.
How does blockchain work?
Every node in the network possesses a complete copy of the blockchain. Transactions are verified based on complex mathematical principles by so-called Bitcoin Miners who maintain the ledger. These mathematical principles also ensure that these nodes continuously and automatically reach consensus on the state of the ledger and each transaction within it. If an attempt is made to manipulate a transaction, no consensus is reached and the network rejects the transaction from being included in the blockchain. Therefore, every transaction is public, and thousands of nodes consistently agree that the transaction unquestionably occurred on the specific date and time. It's as if there is a notary present for every transaction. Thus, everyone has access to a shared single source of truth. This ensures Bitcoin's reliability.
Are there any disadvantages?
With the advent of cryptocurrencies like Bitcoin, people worldwide can trade with each other without involving traditional third parties such as banks, notaries, accountants, and governments. However, a significant consequence is that regulation is no longer (directly) possible.
Additionally, there are some other less positive aspects associated with blockchain. Particularly in terms of energy consumption and efficiency, blockchain still has room for improvement. Therefore, blockchain is only necessary when parties truly do not trust each other, or if there is an incentive for manipulation by a potential central administrator.
The widespread adoption of blockchain technology is still in its infancy. Before strategic and progressive decisions can be made in this field, governments and businesses need to acquire the right knowledge and considerations. Legal frameworks remain a significant obstacle. Uncertainty and inconsistency in (inter)national legislation regarding blockchain can slow down the implementation of this technology and potentially increase costs. Once the legal frameworks are more established, more companies will take real action. Guidelines from FINRA (Financial Industry Regulatory Authority) could be a step in that direction.
What are the applications?
89% of executives from the financial services sector suspect that blockchain will be a fixed component of banks' strategies and business structures by 2026. The execution and handling of a transaction can be done more securely and efficiently in a decentralized manner, providing efficiency advantages. Insurers also see opportunities in smart contracts. These contracts allow a transaction between the customer and a company to proceed without the involvement of a third party.
Possible applications of blockchain technologies exist not only in the financial sector but also in the healthcare sector. Besides securely sharing patient information and billing between healthcare facilities and insurers, there is also the possibility to better ensure data integrity within clinical trials. Blockchain technology prevents manipulation of research outcomes because the stored data is entirely distributed within the network and cannot be altered.
There are many other domains where blockchain offers interesting possibilities. Consider 'earmarked money' such as subsidies and vouchers that can be well tracked using blockchain. Also, aspects like CO2 rights and patent or trademark registrations are viable. For the latter, sharing unprotected intellectual property rights in the pre-stage could be facilitated by registering the invention in the blockchain. Privacy permissions can also be managed through blockchain. One can indicate in the blockchain that a specific party may or may not use certain data.
Where does the Netherlands stand in blockchain technology?
"Netherlands has everything it takes to become the European Silicon Valley of financial technology," said 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 the UK, which are currently leading. The technology behind cryptocurrencies like Bitcoin plays an essential role in seizing these opportunities."
Want to know more?
Dialogic assists public organisations in policy-making with and around new technologies. In the Dialogic Blockchain Series, we explain what blockchain can mean for governments and cover a different topic every two weeks. So, sign up now and stay informed!
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If you have any questions or wonder what blockchain can do for you, get in touch with Tommy van der Vorst.