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Bitcoin and beyond: the promises of blockchain
Published on September 28, 2017 10 min
My name is Jonathon Read. I've worked in a variety of senior roles in financial services over the past two decades, most recently founding and chairing a community bank, Your Credit Union, based in London. I'm adviser to the board of the new challenger bank in the UK, that is currently in the process of applying for a banking license. And I'm a professor of finance at Luxembourg School of Business, where I lead a variety of workshops on the business applications of blockchain.
I'm going to talk on the topic of Bitcoin and beyond: the promises of blockchain. This is a large topic, and my aim is to give you an overview, and to introduce some example applications. Later talks in this series may address certain aspects in more detail. First, after this general introduction, I shall talk about the basics of blockchain and its characteristics. Then, I shall briefly talk about examples in banking, insurance, public services, and digital rights management. Finally, we should conclude with some general comments.
Blockchain can be approached from two complementary angles, top-down in terms of its uses or bottom-up in terms of technology and architecture. At its essence, blockchain is a means of implementing a database with certain features that promote an auditable ledger of content, and the probity of that data without recourse to a central trusted authority. The Bank of England pithily summarizes the top-down view, "Blockchain is a technology that allows different people to have faith in a shared record of events." Despite recent publicity, the core elements within a blockchain solution are well established and implemented, possibly without you realizing in a variety of everyday technologies. There are three key elements. Firstly, a distributed ledger, namely that no single party holds the unique copy of the underlying data, which is instead held at various nodes. Secondly, a consensus protocol, namely that any changes to the ledger are only committed if there is an agreement between the nodes or at least a majority of them. And thirdly, a means of verifying transactions. Changes committed to the database are verified for consistency by an agreed process, a process that in a proof of work systems such as Bitcoin, is commonly referred to as mining, and the reward for the miner is a unit of cryptocurrency. Analogies with human behavior are readily drawn. Voting by raising hands is a consensus protocol, for example, amongst small human groups. Complex systems such as aircraft autopilots draw data from multiple sensors to prevent catastrophic failure in the case of a single error and have a consensus protocol in the case of disagreement between complementary data sources.