Martin Pieterse, Resident Futurist and Director, Ellipsys
You are probably bombarded with the concepts of blockchain, cryptocurrency, Metaverse, NFT, AI, VR, AR and many other concepts. I am sure you have asked yourself:
“Why should I care?
The reality is, whether Bitcoin, Dogecoin, Ethereum or the other currencies are going to survive or not, the underlying technology of blockchain is already disrupting the sharing of information, verification of transactions and the digital lifecycle of information.
Firstly, it is important to note that Blockchain isn’t Bitcoin. Bitcoin uses blockchain technology in a public blockchain to manage a cryptocurrency, but blockchain doesn’t require cryptocurrency to function. Blockchains don’t have to be implemented in the public domain and for most business transactions, blockchains will be implemented on Private Blockchain, Hybrid Blockchain and Consortium Blockchains, where only selected members will be allowed access.
What is a blockchain?
Blockchain is a distributed ledger of transactions (DLT) that are connected through a chain of blocks of data, with each block in the chain linked to the previous block of data in the chain using a unique identifier (the hash) of the previous transaction to ensure the integrity of the current transaction to provide a secured “database” of transactions on a network. A block in the chain can be thought of as a page in a ledger of transactions. Each block consists of the data of the details of the transaction, a timestamp to indicate when the transaction took place, a hash of the current block and a hash of the previous block in the chain. The first block in the chain is referred to as the Genesis block.
Blockchain transactions are immutable, which means no transactions can be amended or deleted. To reverse a transaction, a new block must be generated and added to the chain. The records of these blocks are stored across multiple machines on a network, hence the term “distributed ledger”.
How a blockchain works:
A block of data defines a transaction including all the data and includes the timestamp of the transaction. Using a cryptography key (public/private key) like SHA-256 the data is encrypted and a hash total calculated. The new block is added to the chain and includes the hash from the previous block. In this way the chain is created. To hack a transaction in a blockchain all the subsequent transactions must also be hacked, as well as more than 51% of the nodes on the blockchain network.
Using blockchain for smart contract:
By adding rules to the blockchain technology that executes automatically when certain conditions are met, smart contracts are created. Because smart contracts are coded programs on the blockchain they can be defined with simple logic:
IF <<condition>> true THEN
execute <<action 1>>
execute <<action 2>>
Multiple conditions and scenarios can be defined and when these conditions are met the smart contract will self-execute the defined actions which could include releasing of funds to the defined party, sending notifications, registering a claim or cancelling a policy.
Expanding smart contracts to create NFTs:
A Non-Fungible Token (NFT) is a smart contract that is used to implement a sales agreement between the NFT owner and a buyer where the smart contract verifies the ownership of the token and allows the ownership to be transferred. To have a conversation about NFTs we have to understand the fungible part first. Fungible means that the asset, item or whatever it is can be replaced by another similar item that is similar in function and value. If the asset (physical or digital) cannot easily be replaced with another asset, the asset is non-fungible. An asset is also non-fungible if the ownership is registered. In this sense motor vehicles and real estate are non-fungible. A motor vehicle has a unique VIN number that is associated to that vehicle, allowing the vehicle registration and ownership to be stored in an NFT.
Smart Contract in the Insurance World:
Smart contracts are being implemented in the financial and insurance industries to encapsulate the details of a contract as well as the terms and conditions of the agreement. Smart contracts are a very capable mechanism to define an insurance policy and the self-executing part of the smart contract is used to register and manage claims including the payment of claims.