Decentralised Ledgers: Transforming the World of Digital Transactions
The Internet enables rapid business growth through global connectivity - empowering strangers to easily conduct business with one another. However, despite increasing volumes of business transactions made over the Internet, trust continued to rest in the hands of third party intermediaries - firms and regulators - who confirm the veracity of digital dealings made between two parties.
Thanks to repeated financial crises such as the collapse of Enron (2 December 2001), WorldCom (21 July 2002) and Lehman Brothers (15 September 2008), mindsets began to change. The public felt that the trust in firms, intermediaries and regulators might have been misplaced. How can corporate executives be trusted to deliver on their promises? How can one verify if the data provided is true?
For a long time, there was no efficient way to address the issues. Then in 2008, at the height of distrust for the financial establishment, Satoshi Nakamoto introduced the concept of blockchain to track ownership of an electronic cash called Bitcoin.
Most notably, this new technology does away with the need for a sponsor or intermediary to verify the addition of new transaction records. Instead, all Bitcoin transactions are tracked in a decentralised ledger with blockchain, which utilises a form of DLT. For a Bitcoin transaction to be added to the ledger, powerful computers in the network (called "miners") compete to be the first to solve a cryptographic puzzle that will enable them to verify and secure the new transaction. As an incentive, winners are awarded Bitcoins, which are collected as transaction fees from the user who initiated the transaction. In other words, the role of verifier has been decentralised to all network participants in an open competition.
As soon as a block is confirmed in a blockchain, the data in any given block cannot be altered retroactively without modifying all previous blocks. Changes would require the consensus of the network - making blockchain secure by design. Data is also harder to manipulate or attack as records are held by different nodes in the network. In addition, the decentralisation of records not only puts data in the hands of participants, but also enables them to access the original data and carry out transactions with each other directly.
BUILDING NEW LEDGERS
Today, DLT is seen as a "disruptive technology" as developers and researchers build new DLT solutions for diverse industries. According to research by the International Data Corporation, global spending on DLT research is expected to reach US$9.2 billion by 2021.
While Bitcoin is one of the most famous examples of DLT in use today, the usage of DLT is expected to spread as its potential to record ownership of assets - including stocks and bonds, real estate properties, automobile titles, academic records and works of art - are explored. Foreseeably, DLT can soon be used for anything that requires trusted records - of what we have, who we are, what happened and where.
Some authors have hailed DLT as the "internet of trust" or "internet of value". Truly, by fostering clearer corporate oversight and enabling access to trustworthy data through top-to-bottom collaborations, DLT is likely to not just transform the way we carry out digital transactions, but also the very foundations of our societies and economic systems.