Sunday, 10 July 2016

Blokchain – It’s time we got rid of the Meddling Middlemen

Blockchain has taken a while to unravel its mysteries and full potential despite bitcoins having captured imagination of the general public a while ago. There have been enough and more discussions about what a blockchain is. What is more interesting is what it does rather than what it is! Here is a recap for those who have so far managed to insulate themselves from the rattling noise this blockchain.

The oft repeated definition of the blockchain says it is a distributed ledger. And like a traditional ledger it allows to maintain records of opening balances, closing balances, debits and credits.  But unlike a traditional ledger which requires a single and “trusted third party” to make those entries, blockchain  provides for multiple stakeholders or “nodes” to validate a transaction. Thereby democratizing and making transparent the entire process of record keeping. There are four most important characteristics of a blockchain which have potential to make it the most transformational method of record keeping.  Let’s now see why the ledgers will never be the same again. 

First is the Consensus. Blockchain requires that a transaction or an event be accepted as a valid record only if all – or the majority - of  the participants in that transaction have confirmed legitimacy of that transaction. Mandating the consensus achieves two benefits. The validated transaction can’t be repudiated nor can a transaction be inserted later into the chain surreptitiously. Only a transaction so validated is allowed to be entered as a record into the ledger or the blockchain.

Second is the Irreversibility. A transaction can’t be reversed once it is accepted as a valid record. And this record remains in the blockchain for posterity. Whenever it is warranted that a transaction be reversed then the blockchain mandates creation of another transaction in the reverse order. Thus recording both the event and its “antievent”. All such transactions are then added into a block. Blockchain can define a rule to allow a block of transactions to be created either after lapse of fixed time or completion of a fixed number of transactions. Once such a block is formed then a hash value of this block is created and added to all subsequent transactions. This ensures that once created a block can’t be tampered with. All these blocks are then added to a chain making the records in the ledger irreversible.      

Third is the Provenance. This means a blockchain records not only the title but the entire history of the title as it passes hands over a period of time. Blockchain ensures that a person can’t transfer a title in an asset unless he owns it or transfer a value unless he has the balance more or equal to that value.  

Fourth and the most important is the Transparency. Depending upon the rules defined upfront, a blockchain makes available to the stakeholders of a transaction holding necessary rights, auditors or investigating agencies the history of recorded transactions.

Let’s see how a blockchain will simplify say property registration transactions. Blockchain will be useful for both sale of new as well as resale of pre owned properties. One can create a workflow involving a node each for Property Registrar’s office; local Municipalities; Advocates handling the sale and purchase of properties; Real estate consultants; Builders and Developers; Architects and Civil Engineers,  Building Contractors and even Income Tax Department etc.  Rights of each of these entities can also be predefined. The blokchain then will obtain consensus of all or predefined majority of the nodes before allowing a transaction to be added into the chain. It is apparent that each transaction of sale of property has met all the four qualifying criteria of the Blokchain : Consensus, Irreversibility, Provenance and Transparency.

It must be obvious by now to even a casual reader that these tenets make a blockchain a perfect way of handling a slew of transactions especially in matters of public interest. Blokchain will have several useful applications in payments, banking and any type of asset transfers. A few examples where a blockchain appears to be the most apt way of keeping records are, land / property registration, cross border remittances, handling of Letters of Credit, vehicle registrations, inventory and supply chain management so on and so forth. Using blockchains in carrying out such transactions will automatically eliminate need for a separate third party to maintain a ledger and as a corollary its ability to tamper with records. It is about time the meddling middlemen retired and gave power back to the people.       

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