Why Does The Blockchain Matter?

Why Use a Blockchain?

by DailyCryptoInfo 291 Views

Why Does The Blockchain Matter?

Why Use a Blockchain?

by DailyCryptoInfo 291 Views

Blockchains operate like distributed databases. Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain. Information held on a blockchain exists as a shared — and continually reconciled — database.

This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.


Blockchain tech is actually rather easy to understand at its core. Essentially, it's a shared database populated with entries that must be confirmed and encrypted. Think of it as a kind of highly encrypted and verified shared Google Document, in which each entry in the sheet depends on a logical relationship to all its predecessors.

Blockchain tech offers a way to securely and efficiently create a tamper-proof log of sensitive activity (anything from international money transfers to shareholder records).

Alternatively, if I were explaining why blockchain matters to a large financial institution, I would tell them that they no longer need to fund a large back office function to support financial transactions during the settlement, clearing and custody process. I would tell them that the cost to transact will dramatically reduce.

Digital Scarcity and Exchange Without Centralization

I write a song and upload it to Sound Cloud. It’s downloaded by someone who publishes it on a paid streaming service, say Spotify. They’re now making money from my intellectual property. I complain to the streaming service who either doesn’t care or believe my claim. My song has now been streamed 1 million times and I am penny-less.

We can choose to trust YouTube, iTunes or whatever gatekeepers to handle disputes over who owns what value. Or we can develop systems where we trust the protocol of how we create and exchange value in the first place.

In our current situation, the centralization of trust and arbitration end up costing much more than we think. We don’t realize this because it is simply rolled into the price of our services, while centralized entities take a percentage and grow without constraint.

The uses of blockchain can be broadly classified into three categories:

  • Storage of digital records. Blockchain allows unprecedented control of information through secure, auditable, and immutate records of not only transactions, but also digital representations of physical assets.
  • Exchange of digital assets. User can issue new assets and transfer ownership in real time without banks, stock exchanges, or payment processors.
  • Recording and execution of smart contracts. Self-governing contracts simplify and automate lengthy and inefficient business processes.

Many companies are collaborating with blockchain start-ups, and some large players are even developing their . In addition, most companies are opting to be a part of a , which typically includes industry players, regulators, and governments.


Blockchain as a technology seems too valuable to be ignored. While process efficiencies and better security are key benefits that are being targeted, perhaps the real value lies in the new revenue and solutions that could be enabled by the technology. Indeed, according to a , 24 percent of executives believe that blockchain can facilitate new business models, and more than two-fifths of the respondents who know blockchain expect it to disrupt their industries.

However, blockchain is certainly not the magic potion for all cost- and efficiency-related issues, and businesses should carefully assess the technology’s applicability and feasibility to different processes. It could take a few years before we see wide commercialization of blockchain platforms and applications.

See also: What Can a Blockchain Do?

See also: 6 Reasons To Love Blockchain Technology