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However, like any tool, they can be used for good or ill. That is why an increasingly large number of businesses are adopting the tools behind these digital currencies, such as blockchain technology, for their own projects.
Digital currencies – also known as cryptocurrencies – are different from traditional currencies that have a physical representation, such as banknotes and coins. Instead, digital currencies are traded over the internet, which allows for instantaneous and borderless transfer of ownership, without having to consider currency exchange rates.
Underpinning these digital currencies are blockchains, which enable the secure exchange of each of these digital tokens by using digital ledgers that record the transactions.
Rather than having a central hub, like traditional databases, blockchain’s distributed ledger uses a network of replicated databases that are synchronised over the internet and are visible to anyone in the network.
When a transaction is performed, it is transmitted to the rest of the network. This transaction is then validated, before being time-stamped and securely added to the chain, such that they are all linked in chronological order.
New transactions are linked to older ones, making a chain of blocks that show every transaction made in the history of that particular blockchain. As the chain is synchronised across the internet, it is continually updated so that every ledger within the network is the same.
One of the concerns with using blockchain technology has been that the original open source code operates on a decentralised basis, which exposes it to the “50% rule”. This means that, should anyone control more than 50% of the network, then it could be manipulated in their favour. New versions of blockchain technology have therefore been developed to counter this problem, such as the semi-private blockchains that have started being used by companies.
Semi-private blockchains have been used for tracking diamonds and artwork, and for property exchanges. The blockchain technology validates transactions between one party and another, with the asset identified as the item that is being traded.
Previously, it had been difficult to track the movements of an artwork once it entered the resale market, as not all transactions are always readily available, but using blockchain technology allows the original creator to be guaranteed payments.
Banks and other financial-technology companies, meanwhile, are developing completely private blockchains, which would allow them to securely have complete control and would protect their IP. There are also governments that are considering blockchain technology as a means by which to manage their national currency.
Blockchain creates buzz around London bike scheme
Blockchain technology firm BlockPool has recently begun working with urban cycling scheme Buzzbike, which provides free bikes in London that are sponsored by companies, to create a more efficient reward system for both the companies and Buzzbike’s riders.
Conventional reward systems often rely on some form of centralised system to monitor their users’ transactions, meaning users often have to wait days before they receive their rewards.
However, the blockchain system that has been proposed by BlockPool offers an efficient, transparent and robust system by which people can be instantaneously rewarded.
The system that BlockPool have developed and are about to implement for Buzzbike operates by allowing companies to identify locations on a map, as well as a radius around that location, as areas in which they wish to promote their brands.
Buzzbike riders are in turn rewarded for entering the location and for the amount of time they spend there, with near instantaneous results. In theory, the rider could have the token reward exchanged into real currency before they had even finished their ride.
“There are already exchanges out there, so you do not have you to use your vouchers on coffee or whatever, but exchange them for real-world currency,” says BlockPool founder and director Ken Foster.
BlockPool have developed a bespoke application programming interface (API) called Blockchain Integration Technology (BIT), which will act as a layer between the blockchain itself and the legacy applications of real-world businesses, as well as be another, simplified, interface for the Buzzbike riders.
The API for companies is designed much like a conventional sponsorship programme, where they can upload a banner, select the specific target locations and determine how much they wish to invest. Riders are given their own unique ID, which in turn is assigned a blockchain address for the purpose of transferring rewards currency.
The application for Buzzbike riders indicates the different rewards each brand is offering and where they are based, as well as records their routes using GPX files, generated by beacons on the Buzzbike bikes.
It is envisioned that Buzzbike riders will log on to the Buzzbike app each morning to see what rewards each company was offering and where it was located, allowing the riders to choose where they went, and potentially creating competition between the different brands.
One of the challenges, says Foster, will be ensuring that sponsoring companies can integrate using BlockPool’s BIT application, since some companies are disinclined to drop legacy systems that they have heavily invested in. This has been made more difficult, in his view, as many companies do not yet fully understand how blockchain technology operates.
For BlockPool, the greatest problem will be that of scaling. Several global companies have recently become interested in adopting blockchain-enabled systems in their networks.
“Blockchain has enabled us to provide a means for our partner brands to instantly reward users for promoting them,” says Tom Hares, CEO and co-founder of Buzzbike.
“The real benefit of blockchain is that it enables us to operate smart contracts that award cryptocurrency, as soon as specific pre-determined actions are completed. In this case, a cyclist travelling through or within a specific location.”
Smart contracts in blockchain simplify transaction process
Blockchain technology has also been used for creating smart contracts. Smart contracts have often been compared to vending machines, given that, in exchange for a bitcoin, users are provided with a legal document.
Smart contracts not only define the rules and penalties around an agreement, in much the same way that a traditional contract does, but also automatically enforces those obligations on all the signatory parties involved.
Essentially translating contracts into computer protocols (for example, using if/then logic), smart contracts are stored and replicated on the system and supervised by the network of computers that run the blockchain. This also allows for ledger feedback, such as recording when money is transferred and when the product or service is received.
One example of a smart contract being used is in the transfer of ownership, such as for high-value assets. After both parties have agreed to the terms of the sale, the smart contract will enforce the transfer of ownership by only releasing the asset once the agreed terms of the sale are met, such as a sum of money.
Once the smart contract has confirmed the transfer of funds, it will then automatically transfer ownership to the new owner. The smart contract is then locked and time-stamped, before being synchronised across the network to ensure transparency.
The advantage of smart contracts is that they effectively eliminate the intermediary oversight that was previously provided by lawyers, which is done through automating the process in a transparent and secure system. Although smart contracts are not a replacement for expert legal advice, this process simplification makes smart contracts a swifter and more cost-effective approach than traditional contracts.
However, the potential application for smart contracts extends far beyond simple transfers of ownership. A high-profile example of this occurred in 2015, when a US post-trade financial services company Depository Trust & Clearing Corporation used a blockchain ledger to process 345 million transactions, which in total were worth more than $1.5 quadrillion in securities.
Blockchain technology is also being used to help enterprises prepare for the European Union (EU) General Data Protection Regulation (GDPR), which will come into effect in 2018.
In one example of this, Gospel Cloud uses blockchain technology to securely share and track data across modern decentralised infrastructures within businesses, providing immutable proof of its provenance, usage history and authenticity.
The transparent and secure process of blockchain technology enables smart contracts to be irrefutable and effectively binding, while eliminating the need to pay intermediaries, as well as saving time and money. “Most of our daily transactions will use smart contracts over the next 10 years,” says Foster.
It seems that, at last, blockchain technology has emerged from the shadows cast by its association with recent ransomware cyber attacks. Bitcoins are now being accepted by an increasing number of companies and blockchain is finding more uses in the business community.
“It is just a piece of elegantly coded technology that was not designed to be used maliciously,” concludes BlockPool’s Foster.