Key Driver for
Industrial Revolution 4.0
: Block Chain
July 25th 2017
Advancement of information and communications technologies is ushering the world in a new era of Industrial Revolution 4.0. What is the key driving engine behind the new wave? Global leaders in 2016 Davos Forum selected AI, big data and block chain as the next big thing. As we all know AI is a computer program equipped with intelligence of human beings, and big data enables us to see where the world is heading now. Then what is blockchain? CEO Changki Park of Blockchain OS walked us through its past, present and future outlook at Open Class.
What is Blockchain?
“Block” means computer file record showing latest transactions, and “chain” refers to all users connected in block without any central administrator. Blockchain is the basis for Bitcoin and other cryptocurrencies, and consists of numerous server client systems in a decentralized manner, which makes the technology more cost-effective than the centralized system, highly secure, immutable and not vulnerable to hacking.
The most essential feature is resilience. Typically, centralized computer systems have a central network or backup center. What would happen if something goes wrong with them? Indeed, during the 9/11 terrorist attacks, one company lost all customer data due to network failure. They couldn’t recover data because they didn’t store more than two files. However, in case of Bitcoin, same files are stored in around 7,000 computers around the world, and you can easily recover any lost or damaged data. All you need to recover the record of first to most recent transactions is a few hours.
Welcome to the World
Less Money and Time Needed
Just as the web is the internet of information, blockchain is the internet of value. To put it differently, you share “copies” on the internet of information, whereas “originals” are exchanged on the internet of value. It sounds simple, but means a huge difference.
Let’s say you buy or sell stocks. If you sell shares, you only receive the money in 3 years. Why does it take so long? It is because you need to go through a trusted third party (TTP) to verify the data, before conducting a transaction using copies. First, the buyer of the shares needs a bank verifying that he/she has money. The seller should go to Korea Securities Depository to verify you own the shares. The transaction also needs to involve Korea Financial Telecommunications and Clearings Institute to connect banks, and private TTPs such as banks and securities companies. Lastly, there should be the stock exchange to handle the entire process as an intermediary. For the multiple entities to compare copies against originals, it takes quite a lot. Some even call it “a Rube Goldberg Machine” in that there are too many steps to go through to light one single light bulb.
On the other hand, blockchain makes it shorter and simpler with decentralization. The seller can directly transfer the original stock ownership to the buyer, and can get the money wired in just 10 minutes. It actually only takes 10 minutes to receive payment
after you sell coins on cryptocurrency exchanges such as Coinwon, Korbit or Bitthumb. This March, the Swedish government started to adopt the blockchain technology for real estate transactions, followed by other governments who are reshaping their real estate transaction processes. They should see less frauds and save transaction costs to a large extent moving forward. Sometime in the future no intermediary services like clearing house or registry office will be needed any more.
Replacing Fiat Currency
The very first creation using blockchain technology is Bitcoin. No one ever imagined it can be used as a currency. But in just a year since launch, it was used for the first time in a transaction in lieu of a fiat currency, as someone asked “Deliver me pizza, and I will give you Bictoin”. A boy in the UK actually delivered him pizza for 10,000 Bitcoins which would be worth 15 billion won by now.
Since then, various types of bitcoin transactions took place, and with growing media coverage, blockchain established itself as a proven technology. The cryptocurrency was soon followed by many others such as Ethereum, Ripple, Litecoin and Dash which are traded at quite high prices today.
Ethereum Takes it
to the Next Level,
Driving Business Transformation
Bitcoin is a type of currency, but also a settlement system. Another big cryptocurrency is Ethereum which has added a new concept of smart contract which can save costs and streamline business process. It is an automated process where computers execute codes automatically for qualified individuals only. Combined with financial system, you can build different decentralized applications.
Think about Uber, a mobile ride booking system.Uber is a platform to connect passengers and drivers, and charges 15% as service fee. Here as well, decentralization technology can way lower the fee. On freely-available platform, suppliers can offer services at higher prices, and consumers can buy at lower prices, which also further facilitate the economy to grow. That is why many people believe centralized services of today will become increasingly decentralized.
The wave of change is sweeping global companies too. Reuters, an international news agency; BHP Billiton, the largest resource company in the world; and Santander Bank, the largest bank in Spain, to name a few, are gearing up to transition to decentralized services, building the momentum to further drive the 4th Industrial Revolution.
4th Industrial Revolution
At this juncture when blockchain has become a buzzword as core part of Industrial Revolution 4.0, the world is envisioning how things will change driven by the new technologies. So let’s take a look at what they are.
Growth of Internet of Things
We will witness more Internet of Things(IoT) than today in our lives. IoT is connected with other IoT building massive data from the connectivity, and the big data will be analyzed by AI to support decision-making of human beings. Let’s take a car as an example. To drive a car, you need navigation system, and for autonomous driving, multiple IoT devices and sensors on the road should interact with each other to process distance and other data device-to-device, which can benefit greatly from using blockchain and smart contract technologies.
IoT is too small to have security solution embedded. However, some services such as intelligent robots and unmanned vehicles require strong security features. Multiple services need to play the TTP role on their own through blockchain, and here you need smart contracts. Blockchain and smart contracts boast strong security on their own, and thus will be a highly valuable tool in the near future. It will be the basis of many different services to lead the 4th Industrial Revolution.
Evolving Forms of Government
It will also bring in a change in “govern-tech” which means a combination of governance (public administration) and technology (science technology). Blockchain can be used in different areas including political party accounting, government budget spending, corporate accounting book, apartment maintenance service fees and voting system. In particular, the technology can make the voting system even more powerful by lowering the chance of vote-rigging and thereby bringing direct democracy to life. The UK is already moving to a new government system for the post-blockchain era.
IT System Change in Banking,
Securities, Insurance and
Other Financial Business
Let me take R3 as an example which was created back in 2015 by global financial institutions. Before, they used to have an international settlement system called Swift System, which however required lots of time and money. So R3 was set up to lead a consortium to build a new block-chain based international settlement system.
Shift in Legal Tender
In Sweden, many people want to keep their money in a vault because of a negative interest rate policy. So the government is trying to turn the legal tender into a form of blockchain with a view to prevent bank runs. China has an ambitious plan to leverage blockchain system to advance its currency into a global one. It may earn tremendous profits from minting coins and supplying them for electronic wallets around the world. The UK and Canada are also working on turning their legal tenders into blockchain-based currency.In the near future, all banks’ networks will be connected into one, putting an end to the world of complicated systems and physical currencies.
Initial Coin Offering (ICO)
ICO is a crowd funding to attract investment from around the world. You get funds in exchange for your coins to be listed on the exchange. Businesses in need of funds can source funds from diverse investors around the world, and the public can have an opportunity to invest in coin-based start-up projects. ICO is growing so fast these days as a whole new way of funding in the human history. There are critical voices, though, against undue profits from the funding. There are real-life cases where ICO produced more returns than venture capital investment.
Q&A on Blockchain
Q. Cryptocurrencies are popular as an investment vehicle, not as means of exchange yet, presumably because of their high price instability and volatility. Will they become more stable moving forward?
A. Bitcoin has been already playing the role of key currency for other altcoins. Altcoins do not trade in large volumes yet, hence quite larger volatility. That is why some people think it cannot fully act as a formal currency, but currencies are used for diverse purposes such as a store of value, means of payment etc. A high volatility may mean they are hard to record in a ledger, but it does not matter when used for payment. So it does not have any problem as a store of value and means of investment. They are already qualified to some degree to be accepted as a currency.
Q. You only talked about successful cases of blockchain technology. But there should be a chance of system “default” or “forward”. Were there any such cases?
A. Indeed it can be muted or hacked, but the chance is quite low. Bitcoin actually had some hacking attacks, which however are not attributable to intrinsic weaknesses of blockchain, but mis-management of exchanges. It is true that Bitcoin itself has some loopholes. One is that it has account numbers but does not say anything about the owner. You cannot verify the real name of owner, so you cannot recover it once lost. So you may say the system is less stable than banks. But it is still in an early stage, and there are ample opportunities for improvement, as we see more and more altcoins coming up with stronger features.
Q. Is there any chance of hard fork?
A. More and more ideas are coming up regarding improving blockchain system. In case of conflicting approaches, the system may be split into two at the end of the day because there is no mediator. Ethereum, for example, was indeed split into Ethereum and Ethereum Classic. When the system is split, those with original coins will still have the same volume of coins under the new system. It is expected that Bitcoin may have a hard fork in August or September.
Blockchain is yet a new world to many of us, but is already changing many parts of the world. We will benefit from the technology to lead a safer and more convenient life. It can unlock far more bright future for us than expected.