Blockchain is coming! Blockchain is coming! Wait, what’s blockchain? I’ll try to answer that in this first of three installments.
“No, no! The adventures first, explanations take
such a dreadful time.”
– Lewis Carroll, Alice’s Adventures in Wonderland
Almost every basic primer I’ve read on blockchain technology has left me with more questions than when I started. For many of my readers, this could well be the first time you’re encountering the term. It will not be the last. I’m going to try to break it down for you.
I think there are Himalayan hermits who have heard of Bitcoin by now. Such hermits may still need a brief explanation. Bitcoin is known as a cryptocurrency. It’s an electronic version of money that is not based on or supported by any other type of currency. It is a heavily encrypted, experimental, open source data system that is nearly impossible to hack. It acts as a secure, chronological catalogue of token-based transactions.
These tokens are of a finite number regulated by computers all communicating with each other over a network. The United States Federal Reserve Bank works to maintain a finite supply of U.S. dollars so as to control inflation and other aspects of the economy. Bitcoin has no such central bank. The software running the network makes sophisticated calculations to control the number of tokens available. By setting a finite number it creates scarcity, meaning that there’s only so much to go around. By creating scarcity, it creates value. By creating value, it creates a marketplace where these tokens can be traded. Et voilà!
So what is blockchain? • Blockchain is the underlying technology being used to create cryptocurrencies like Bitcoin as well as other value-based business models. The value of a token might be expressed in units of computing power or data storage or anything that a marketplace might value, including time. The most succinct definition I’ve seen yet comes from Wikipedia:
A blockchain is a decentralized, distributed and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively without the alteration of all subsequent blocks and the consensus of the network.
Let me delve into this a bit farther:
- Decentralized – No central bank, company or government owns or runs a blockchain.
- Distributed – A blockchain is replicated on thousands, if not millions, of computers worldwide simultaneously. There is no weak point and no central system to be hacked. In order to corrupt the system, the majority of computers running it would have to be altered at the same time. In theory, only a global electrical failure could interrupt a blockchain.
- Public – Everyone with access to the system has access to all of the data. Any user can see what business any other user has transacted. You may not know the user’s personal identity unless you’re directly involved in the transaction, but you can know that the transaction took place, including when and for how much. Imagine logging into your online checking account and being able to see all transactions for all account numbers (without personal identities) at your bank. You’d be able to audit the bank by yourself!
- Digital – By being digital on this scale, it is virtually indestructible. There is no computer to crash or building to burn down, like the Library of Alexandria in Ancient Egypt.
- Ledger – The word ledger is an important part of the definition. Classic double-entry bookkeeping was invented centuries ago during the Renaissance. Corresponding entries in multiple books known as journals and ledgers must agree with each other in order to keep the system true and honest. A general bookkeeping rule is that journals are written in pencil and ledgers are written in ink. In other words, you can edit a journal, but you can’t edit a ledger. In this same way, you can’t edit a blockchain. You can add to it, but you can’t edit it. The only way to change an entry is to add a new entry that references the first one. For instance, when a buyer sends a seller a payment, a new ledger entry is recorded in the blockchain. If the seller refunds the payment, the original payment cannot be edited or changed in any way. However, a new ledger entry is recorded referencing the original payment and detailing the return of funds to the buyer. Therefore, a true, accurate and honest history of all transactions is permanently tracked in the tamperproof blockchain. “Written in ink,” as it were.
So now you know that a blockchain is a decentralized, distributed, public digital ledger. It’s impact on banking and commerce is yet to be seen. It’s still in its infancy. It promises to be one of the most disruptive and redefining elements of the world economy since, well, double-entry bookkeeping.
And it will change how you market your goods and services in the digital universe.
In Part II of this series, I am going to outline the general landscape of digital marketing and ad buying as it stands today, with its middlemen and systems for brokering transactions between buyers and sellers.
In Part III, I am going to show how blockchain could revolutionize the way advertisers and marketers interact with distribution channels, and ultimately their customers.
Stay tuned. More to come!