Ledgers and records of transactions have existed for thousands of years. These ledgers helped individuals, businesses and governments identify who owned what property and title claims. The validity of the transactions was authenticated by a centralized government regulatory authority, like the registrar’s office.
While this model of centralized record keeping had proven useful, it had also been noted to be incredibly slow and time consuming.
With the coming of computers, ledgers started becoming digitized. The private sector led the way, with their innovative online record keeping platforms. Government agencies around the world tried to catch up as they started to adapt the system as well.
This greatly enhanced the speed of transaction processing. Computer-based databases could record a much larger set of transactions, allowed better retrieval and sorting of the database while saving a great deal of space that would have been used for paper-based filing systems.
The digital revolution took place not too long ago. Most of us are witness to the adaptation and transfer of paper based ledgers to digital databases and ledger systems. We are now looking at the possibility of a new revolution. Offline digital databases are being put on cloud-based servers. While these servers allow 24 hour accessibility to users, they are also considered prone to hacking.
The solution is a decentralized ledger system where data must be authenticated by a P2P system.
Distribute Ledger System
Blockchain is the next generation of digital data recording. Each transaction is bundled into a block that is added to the chain of record. This new chain is then authenticated by separate nodes spread around the world.
The real power of the blockchain technology over cloud based systems is that it must be authenticated by a network. While hackers may be able to overwhelm a centralized system, a decentralized peer based authentication network cannot be manipulated by a single node.
Interest from Financial Institutes and Bankers
We are still trying to understand the full potential of blockchain and identify areas where it can be useful. Nonetheless, the technology has generated quite a buzz in the financial sector. Much work is being done to create new ecosystems for application of the distributed ledger in currency exchange, mortgage lending and structured financial instruments.
Blockchain can also be used for tax collection, property deed transfers, distribution of social benefits, money transfers and medical record keeping. One large retailer is even planning to use the technology for managing its supply chain and inventory.
The Maturity of Distributed Ledger Systems
The distributed ledger systems are expected to grow and mature over a period of time. We expect some of the new platforms will fail, while others will do better, as the technology continues to improve. There will be a tipping point, when the majority of people will have switched over to DLS.
A lot depends on support from governments and regulatory authorities. Decentralized systems are near impossible to control by a central authority. This could create problems in legal, technological and consumer protection matters. One challenge for developers is how to tackle concerns from regulators while keeping their future platforms free from interference.
Process Improvement Using DLS
Microsoft has already been working for over a year on developing trade finance products for businesses. Peter Hazou, the business director for the company, is looking to expand blockchain’s potential beyond trade finance and payments. He believes that smart contracts are the next big thing that offer the most potential for business organizations.
Smart contracts are automatically executable instruments that are based on the willingness of different parties to collaborate and work together. The conditions of smart contracts are set at the time of creating them. These involve a level of sharing that has not been possible before.
Once again, private businesses and organizations are at the forefront of using DLS, with governments only adopting these systems after they proven their efficiency and worth to the world. Based on this pattern alone, we can hope many good things to happen in the future of blockchain and DLS.
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