5 Things to Know About Blockchain
While the conventional wisdom around blockchain relates to a technology only affecting financial markets, A&E stakeholders also need to pay attention to new developments. If you don’t, you risk falling behind on an important trend that potentially presents a competitive challenge for your firm, but also missing the opportunity the technology presents. Blockchain and its real-world applications are constantly evolving — which is why understanding the basics now is so critical.
With that in mind, here are five things you need to know about blockchain now.
1. At The Core, It's Just A Database
If you Google blockchain or ask a technologist what it is, you’ll get a slew of technical responses like “global ledger,” “distributed ledger technology,” “mining,” or “immutable record.” However, when you filter through the technical explanations, blockchain technology is just a database.
Granted, it has special design features that make it groundbreaking. It changes the base layer of the internet’s infrastructure to help people secure their identities. It does this by pairing a public and a private key that enables one-way encryption and decryption, but that’s all you really need to know about the technical aspect of blockchain.
2. It Decentralizes And Distributes Risk
Unlike traditional databases, where one party controls the data or information in the database, blockchain technology is a decentralized transaction ecosystem. Multiple parties contribute transactional data in real-time and all have a complete copy of the latest version, as well as the history of previous versions. Access is decentralized and the risk is distributed so that no single party carries the risk of a breach. Thus, hackers can’t hold data or records ransom, for example, because all parties have a full and complete copy of the database and its history.
In this transaction ecosystem, architectural and engineering services can be transacted over the internet. That makes blockchain applicable and valuable, not just to financial services, but to all commerce — including your own.
3. It Eliminates The Middle Name
Blockchain enables true digitization, where agreements to provide services are digitized with tokens (that can represent USD or other assets) and those tokens can be transferred through the internet without needing intermediaries to process or verify the transaction. Unlike traditional transactions where a bank, credit card company, or other intermediary is required to verify and validate the release of the ‘thing of value,’ blockchain-based transactions are processed using an algorithm through a decentralized network of computers.
For example, in a neighborhood where homeowners have rooftop solar panels and one homeowner produces more energy than needed, blockchain technology cuts out the middle man (i.e. the utility) and enables homeowners to sell their excess generated energy in real-time to a neighbor.
4. Statehouses Are Paying Attention
In 2018 already, 14 state legislatures (Arizona, California, Colorado, Connecticut, Illinois, Maryland, Missouri, Nebraska, New Jersey, New York, Tennessee, Vermont, Virginia, and Wyoming) are currently considering or are in the process of passing legislation related to blockchain or its potential applications. Most of this legislation explicitly enables blockchain technology (albeit not necessarily required), mandates agencies to explore the technology, or formally institutes the study of the technology for use. Compared to last year when only seven state legislatures were actively exploring legislation and just three in 2016, this year’s uptick is an indicator of a trend that will likely continue to grow.
5. The A&E Industry Is Ripe For Change
Several potential use cases connect blockchain to the A&E industry. No other industry needs better, more efficient ways to collaborate and transact. Projects of all sizes involve multiple stakeholders and phases, including financing and funding, planning and design, construction, maintenance, and operations. How might blockchain bridge communications between so many stakeholders and streamline this complex process?
One particular area to watch is smart contract technology. Smart contracts are self-enforcing contracts enabled with blockchain technology. What’s interesting about this application is that it behaves as a governing mechanism of the relationships between the parties, similar to a traditional contract, but also as governance-on-wheels because the terms and conditions are connected to the flow of funds and aids in automating a sequence of events. It’s an active, self-enforcing contract that is automated through a series of coded if/then statements. In other words, it’s an automated contract.
What Happens Next?
Predicting future applications that will come from blockchain technology requires a bit (actually, a lot) of squinting through the fast-paced technical developments and machinations. With blockchain, the second generation of the internet’s possibilities seems similarly endless.
Content provided by Yvonne Castillo of Victor O. Schinnerer & Company, one of the largest and most experienced underwriting managers of specialty insurance programs.