The following Q&A was prepared in collaboration with our affiliate, Wipfli LLP. With more than 2,000 associates across the United States and in India, Wipfli ranks among the top accounting and business consulting firms in the nation.
Blockchain is a topic you can find seemingly everywhere these days. Whether it’s news about cryptocurrency, the progress businesses are making in implementing blockchain technology or predictions around what blockchain might be capable of, chances are you’ve come across blockchain before. But you may be wondering: What exactly is it? Why are people so excited about it? Why are we all hearing so much about it?
We asked Girish Ramachandra, a senior manager in the technology consulting division of Wipfli LLP, to answer our top six blockchain questions — all the way from what it is to how it might be used in the future.
Here’s what he had to say:
1. What is blockchain?
Blockchain is a distributed, immutable database. It’s distributed in that it’s a public ledger (in simplest terms, like a spreadsheet that’s open to many people), and it’s immutable in that once you write something, you can’t change it. Each block identifies a specific transaction written in the ledger, and each block is connected to several previous blocks, which essentially protects the blockchain via cryptography.
2. Why is blockchain important? Why are people so excited about it?
Blockchain shifts trust from a centralized authority to a decentralized database (i.e., the people connected on the blockchain). For example, it has the potential to change how we think about global IDs, which are currently issued by a centralized authority. Blockchain potentially means this doesn’t have to be the standard, that IDs can be stored on blockchain because it’s an unchangeable database that is currently impossible to hack.
Blockchain technology has the potential to shift how we see identity, money and much more, and it’s these sorts of possibilities that have people so excited about it. Like the internet and smartphones, blockchain is the next big thing that’s unlocked the value of possibility.
3. What sort of potential applications does it have?
The major applications we see today are within financial institutions. Blockchain can improve the speed and security of money transfers between financial institutions by cutting out the middle man, so there is a huge efficiency enhancement there.
But there are also potential applications in industries such as health care, supply chain, manufacturing and retail. The health care industry is grappling with the ability to transfer patient information between health care providers and between countries (for travelers). If your information is stored on blockchain, it can be transferred more easily.
Cryptocurrency, of course, is the largest example of a current blockchain application. But outside that, we still have to build the ecosystems for blockchain, and that’s what is slowing down its implementation in other areas. Blockchain is in its nascent stages, but it has the potential to advance and apply to a lot of industries.
4. Has it been implemented anywhere else besides cryptocurrency?
Blockchain is being implemented in stock transaction settlements. The Australian Securities Exchange plans to replace the Clearing House Electronic Subregister System (CHESS) with blockchain to improve efficiency and reduce costs.1
On the old system, if you buy stock from someone else using an exchange, you take ownership of it in two or three business days after the transaction date (even though your account shows right away that you own it). This is because a middle man performs stock transaction settlements. But with blockchain, the moment you buy stock, you own it. There’s no more need for the middle man to process the transactions.
5. What other technologies are developing along with blockchain?
Artificial intelligence (AI) and the “internet of things” (IoT) will likely work together with blockchain to make an impact. It’s not just one of them alone but rather a confluence of the three.
Manufacturing is a great example of the potential for all three to work together. If a car company has a manufacturing plant in China making vehicles, they can use IoT, via sensors, to track what’s happening real-time in the factory. Those sensors record data onto blockchain so the data can be tracked, and that data feeds AI as analytics. With all three of these technologies working together, you could predict what machines are going to break down soon and plan for it to prevent manufacturing delays.
6. What are common misconceptions about blockchain?
There are a few big misconceptions:
One is that blockchain is being hacked. The very nature of its build means blockchain is currently impossible to hack. If a hacker wants information in one particular block, they need the information in all the connected blocks to get to it, and any hack would be detected long before someone could break into them all. The computing power necessary to hack blockchain just doesn’t exist right now. There is the potential for quantum computing to hack blockchain, but that technology is still far away.
The reason we’ve heard reports of cryptocurrency exchanges being hacked is because the hacks are happening outside blockchain. Hackers pick the weakest link, so they’re going after not the blockchain piece but rather the programs and software interacting with cryptocurrency outside blockchain.
The second misconception is that blockchain is cryptocurrency. It’s the other way around. Cryptocurrency is an application that uses blockchain technology to work.
This misconception has given rise to a third: that blockchain is not here to stay. Perhaps cryptocurrency is not here to stay, based on what governments decide and how they regulate it. However, blockchain as a technology is here to stay because of the efficiency gains it has the potential to provide. Many companies are researching and investing in the technology, so given time, it could make big disruptions. We won’t know until these disruptions start happening, which means it’s impossible to write blockchain technology off right now. Basically, we underestimate things that will happen in 10 years but overestimate what will happen in two years. Blockchain is not going to take over the world in the next two years, but it will be exciting to see where the technology is in 10 years.
If you enjoyed this Q&A, there’s more! Wipfli Financial Advisors’ Chief Investment Officer Rafia Hasan has answered our seventh blockchain question: What should the average person know about investing in blockchain?