Blockchain Technology And Its Potential Changes To the Society
Blockchain technology was initially introduced as the primary structure and mechanism of Bitcoin, which was the first digital cryptocurrency to be released in 2009. Currently, it is regarded as the most fundamental invention to come from the internet. Factors such as increased computer power, affordability, and global expansion in access to the internet would establish foundations that led to the development of numerous cryptocurrencies (Al-Saqaf & Seidler, 2017). The blowout of these currencies developed using blockchain technology was also understood as one of the strong public reactions towards the perils that arose after the 2008 financial crisis, specifically within the centralized systems and institutions (Al-Saqaf & Seidler, 2017). The 2008 financial crisis weakened the public’s trust in traditional financial intermediaries, hence trying out digital currencies.
Notably, blockchain technology conceptually entails having a blockchain, a distributed database containing records of transactions shared among participating members. Every transaction gets confirmed through a consensus made by a majority of all members (Efanov & Roschin, 2018). This makes it impossible for fraudulent transactions to happen due to the challenge of passing the collective confirmation after the blockchain accepts a record that has been created. This record cannot be altered, nor can it disappear. It is the technology’s unique ability to solve the authenticity challenge without needing trusted intermediaries that blockchain technology is so disruptive (Mattila, 2016). Professionals from different industries and sectors have acknowledged and remained open to exploiting the potential disruptive capabilities of blockchain technology.
Principally, the size of this technology will grow exponentially, with recent estimates indicating that the newly born technology will store about 10% of the global GDP in 2025. Blockchain technology’s current growth and potential have promoted this discussion whose intent is to understand it critically. Also, the discussion will look into what are the potential changes of blockchain technology in society.
While the internet changed how information is transferred, blockchain is changing how value is transferred. Full comprehension of blockchain technology will need an understanding of different things. Generally, blockchain is a decentralized ledger of transactions happening within a peer-to-peer network. Blockchain technology is not similar to bitcoin, but rather it is the underlying structure of bitcoin and other cryptocurrencies. Different participants, such as buyers and sellers, are allowed to interact directly via the internet without needing a third party in the distributed environment. Blockchain is considered a database of collected translations occurring within a network. This database is public and not owned by one party. All the transactions are in constant synchronization to keep them updated and secured through the art of cryptography hacker-proof. The working of blockchain technology entails a network of computers that are all required to approve a transaction before it is recorded in the computer chain.
As indicated, several cryptocurrencies have been developed with the topmost currently including Bitcoin, Etjereum, Ripple, Litecoin, Cardano, among others. Blockchain technology operates above the network layers and before the applications. Abstractions are provided for recording the transactions, consensus rules, and peer-to-peer networks. The figure below represents a stack for ethereum for blockchain technology.
Figure 1: Blockchain Technology Stack for Ethereum.
In conjunction with decoupling smart contracts with it, the blockchain layer prompted the creation of a flexible environment compared to the Bitcoin Blockchain. Smart contracts represent the code that is established with particular rules and is placed above the blockchain network. At this point, the smart contracts control the digital assets. Smart contracts are hence used to complete simple transactions such as sending money. They will be auto-executed after the arbitrary rules fulfill all the parties. Additionally, smart contracts could be used for even more complex transactions, such as governance, if several people share similar interstate and objectives.
Independently from the initial technological design and applications within blockchain technology, the blockchain is regarded as the foundational technology leading a paradigm shift from trusting human beings to trusting machines and shifting from centralized control to a decentralized one (Aste et al., 2017). Therefore, a better understanding of the potential of this technology requires an examination using two different lenses. The initial lens follows the technical point or rather the ICT technology that involves recording ownership of the on and off-platform assets in conjunction with the rights or obligations that arise from the agreements (Aste et al., 2017). Any kind of data is recordable on a blockchain, from the assets’ ownership details to the contractual obligations and even the creative art copyrights, among others. The second lens follows an ‘institutional technology’ perspective that looks into decentralizing governance structures while coordinating people and making economic decisions.
Blockchain Technology’s Potential Changes
Understanding the potential changes that could come from blockchain technology will require an understanding of how its different features and applications get applied to different sectors. Blockchain technology has been synonymous with cryptocurrencies, specifically Bitcoin, with the financial sector entirely usurping its potential (Freeman, 2021). Bitcoin is currently the most popular well-recognized cryptocurrency than its underlying blockchain structure. Bitcoin has demonstrated a meteoric rise that, as of 2021, its price was about $41,808. Over time, the rise and fall in its price have been an incredible feat that illustrated both the promise and risks inherent within blockchain technology. When the investment market has also ventured into the cryptocurrency space, it is evident that revolutionary possibilities of blockchain technology are imminent.
Concerning cryptocurrencies, the development of blockchain technology will ensure that they will disrupt traditional finance (Nova, 2021). This is because of its ability to efficiently transfer payment across borders with minimal costs, delays, or fluctuations in foreign currency. It is estimated that cryptocurrencies such as bitcoin are gearing towards being the world reserve currency, considering that there is no need to doubt the longevity of encrypted algorithms as stores of values and media of exchange. Stablecoins are cryptocurrencies intended to be pegged as a reserve asset but not issued by the Central bank (Locke, 2021). Stable coins are considered efficient as they avail low-cost and easily accessible digital payments within and outside territorial borders. President Biden has told Congress that stablecoins could offer faster, efficient, and more inclusive payment options with proper regulations (Locke, 2021). Therefore, with more robust regulations to specifically handle the volatility around cryptocurrencies, these currencies are bound to revolutionize the economic world. Consequently, cryptocurrencies represent the start of a new phase of technology-driven markets with the potential to disrupt conventional market strategies, well-established business practices, and prevailing regulatory perspectives (PricewaterhouseCoopers, 2022). These changes are expected to benefit consumers and the wider macroeconomic efficiency. These digital currencies carry the groundbreaking potential of allowing consumers to access a global payment system at any place or time, considering that currently, participation has been restricted by factors such as having a credit history or bank account.
Notably, with blockchain technology demonstrating its ability to handle many inefficiencies with the present technologies, it is clear that the technology is on the verge of driving the fourth revolution, especially when integrated with other robust technologies (Pollock, 2018). It is prudent to note that the first revolution encompassed the emergence of bitcoin from the original blockchain structure. This revolution entailed a considerable focus on transactional blockchains, Which primarily established the forefront of the mainstream comprehension of the technology. The second revolution has encompassed ethereum and smart contracts that have taken blockchain technology into different sectors with the sights of its potential disruption. The third generation currently entails the current discussions concerning the Directed Acyclic Graphs. However, the fourth industrial revolution will possibly be attained by blockchain technology integrating with artificial intelligence (AI) to create even more robust change.
Both blockchain and AI are forging their paths with minimal overlap. Nonetheless, there is an evident link between the two in the form of data. The emergence of Big Data and its importance catalyzes the relationship between blockchain technology and AI. The AI revolution is occurring because it has allowed big businesses to organize a considerable amount of data into structures that computers could process (Pollock, 2018_. Similarly, the importance of data has fostered the advancement of blockchain as the distributed ledger to become the few data storage option that is also effective., to this end, the need for data analytics with AI is increasing, and hence combining AIn and Blockchain is one of the reasons for the Fourth Industrial Revolution to happen. The integration of the two will enhance their underlying architecture and boost their potential considerably. For instance, blockchain offers security and immutability arising from its cryptographic nature, making it suitable to store highly sensitive personal data, which smart processes will unlock their considerable value and convenience to society. The health sector is unlocking this protection by processing sensitive data provided by blockchain technology (Pollock, 2018). Furthermore, blockchain will boost the coherency and understandability of AI, and society will trace and determine why particular decisions were made in machine learning. Blockchain and the distributed ledger will record all data and variables used to decide machine learning. On the other hand, AI will foster blockchain efficiency much better than the human capacity or the capacity of standard computing. For instance, the smart combination of AI and blockchain will attain a more efficient code-breaking through the hashing power.
The integration of blockchain and AI to break forth the Fourth industrial revolution will lead to creating a data marketplace that will be a free market for developers seeking particular data types for their projects. This market will be made of secure private data that could be shared or sold in a competent manner such that even the small players can enter the fray. The integration of these technologies will provide double protection from cyber-attacks. The training of machine learning algorithms will allow the automation of real-time threat detection and continually learning about the behavior of hackers. Consequently, this thickens the detection of malware systems (Pollock, 2016). Also, the decentralized blockchains will dismantle the vulnerability within centralized databases such that hackers will be challenged to go through numerous entrance points. Blockchain and AI have considerable potential, and their actual impact on society will be obtained if they are tied together to boost each other up and expand their distinct capabilities.
One of the certain benefits of blockchain is the guarantee to overcome the trust challenge during the transfer of value. This technology has been finding more applications within markets whose intermediation is high such as the financial sector, specifically the Fintech division (Levis et al., 2021). The diffusion of digital technologies has led to a consistent make-over within the FinTech sector. Blockchain technology has led to the development of automated forms of peer-to-peer lending, which means that the parties who could not access the basic financial services previously due to an absence of certified financial records can now access them. To this effect, this technology avails values across several dimensions, such as a decrease in information asymmetries and a reduction in affiliated transaction expenses. Virtual currencies such as bitcoins could potentially disrupt how participants within the financial sector operate their ventures, especially the new ones. Through the Initial coin offerings (ICOs), a financial company that needs new capital will offer digital stocks, also known as tokens, to the public (Levis et al., 2021). Investors then use the digital tokens which are then used by investors for paying the future products developed by the financed company. ICOs are hence regarded as potentially disruptive tools that will change how entrepreneurs finance their ventures without intermediaries and consequently minimize the cost of the capital raised. It is prudent to note that this technology adoption poses some threats, such as the blockchain leading to higher risks that relate to a lower control level inherent to this technology.
Corruption and the violation of human rights have often thrived in environments that foster secrecy, information asymmetry, and opaque communications. Conversely, blockchains have been designed to ensure total transparency of the system nodes such that every information is traceable to the source and can be followed easily (Dutta et al., 2020). To this effect, it is evident that blockchain technology will soon be incorporated in the fight against these vices. The smart contracts that are automated computer programs are triggered to transfer digital assets when particular conditions are met. Therefore, in relation which is a major challenge in third-party countries, smart contracts will aid in eliminating corruption through the provision of faster and less expensive transactions with high transparency (Dutta et al., 2020). The activities that go unreported and unregulated despite being illegal will also benefit from blockchain technology. For instance, slave labor to fish Pacific tuna can be handled through blockchain technology, which better traces the fish origins by retailer and ensures that only the legally sourced fish is sold. Consequently, the technology will be fundamental in enforcing labor and environmental standards in organizations and entire industries through crowdsourced accountability. Organizations have started developing a blockchain-based system that augments external auditors to look into the health and safety of their factories with the employees self-reporting. These processes will be beneficial to society bringing in considerable effects.
Considerable change is also expected in international trade, considering that the latter triggers numerous processes being carried out and registered in every participant’s systems. Across the entire logistics chain, the data is replicated within the systems of each participant, whereby there is typically a re-entry into a new system. For instance, considering the Latin American and Caribbean regions, it is estimated that 75% of the exporters re-enter information in their system before submitting paper documentation to the right trade authorities (Diaz, 2021). However, the existence of these multiple records often increases the risk of error, delays, inefficiency, data time lags, and even fraudulent activities. Notably, since the blockchain has a single shared and verified version of the data, its implementation will ensure that all participants get similar information. This step eliminates the requirement of having a centralized authority and a reduction in the volume of paper used, the time, expenses, and the complexities within bilateral trade communications (Diaz, 2021). Additionally, advanced cryptographic techniques being used in the storage of information within the blockchain in conjunction with the encryption within electronic communication will ensure that the transactions are happening within a secure environment that allows traceability and the analysis of data dynamics.
According to the World Economic Forum’s study, which assessed the effect of blockchain on supply chains that involved over 60 participants in 40 different countries, international trade is about to improve efficiency and security with the proper implementation of blockchain (WEF, 2019). Among different elements, trade finance was determined to expect a higher quantifiable and visible impact for the regional exporters. Specifically, the SMEs are prompted to incur high expenses associated with exporting in terms of the financial transactions themselves and the time and possible delays faced during the international banking process. The technology is also expected to prompt the attainment of a consensus and the establishment of international standards that permit system systems interoperability, especially those affiliated with the certification of origin. Also, the standards will handle the traceability of sensitive trade information via the blocks to determine the assets; ownership within a particular transaction (WEF, 2019). Based on distinct aspects of international trade, it is expected that the business model within the logistics sector will change, and other applications, technologies, and value-added services will be incorporated to meet demand expectations. Currently, it is very challenging within the international trade processes to ensure security and traceability in conjunction with ensuring shorter delivery times and lower delivery expenses.
Conclusively, society is on the verge of a radical change mainly due to the development of blockchain technology. This technology has allowed different sectors to carry out their operations with the necessary trust levels between known and unknown counterparts. The disintermediation opens the possibility of directly exchanging value over the internet, which has been a huge challenge for the present technologies. To this effect, society should be ready for the fourth Industrial Revolution that will see the integration of AI and blockchain technologies building and expanding each other for the development of Big Data. Cryptocurrencies such as bitcoin will soon be a currency reserve option for individuals and countries with the right regulations. The potential impact of blockchain technologies which includes both the positive and negative will be felt in society over time.
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