Blockchain is a simple digital platform for recording and verifying transactions online that other people cannot erase and anyone can see.
No certified bookkeeper oversees the transactions, because the blockchain is a decentralised spreadsheet that relies on the power of crowd computing and cryptography, rather than a central authority.
Thousands of computers around the world verify transactions and manage a global decentralised ledger.
The best known use of blockchain so far is to facilitate digital currency transactions, the most notable being bitcoin.
When you make a bitcoin transaction on the blockchain, each transaction is distributed to many nodes in the bitcoin network.
Simply put, everyone participating in the bitcoin process also has a copy of that distributed ledger and can check it for inconsistencies.
A cryptographic process, relying on the combined computer power of the cloud, verifies the order of transactions.
Try to pass off a fake exchange and other bitcoin users should be able to trace every alteration and exchange that occurs, a role traditionally undertaken by established third parties such as banks.
Presently, the tech-savvy community dominate the evolution of blockchain as they did when email was being made more user-friendly for mere mortals.
Remember when the only way you could check your email was through a command line prompt?
Then web browsers were developed, producing a far more friendly and seamless experience for non-technical users.
Also slowing down the community’s appreciation of blockchain’s potential is its legacy reputation.
The majority of media coverage has been about the criminal activity surrounding Silk Road, the collapse of the Mt.Gox bitcoin exchange and the price volatility of the digital currency itself.
Because of the prominence of digital currencies in any discussion of blockchain technology, people have focused on the currency rather than the technology behind it.
While digital currencies are not regulated by the Reserve Bank of Australia or subject to regulatory oversight, the RBA maintains that the current limited use of digital currencies does not raise significant concerns with respect to competition, efficiency or risk to the financial system.
The RBA argues that digital currencies are more likely to raise concerns over issues relating to taxation, Anti-Money Laundering and Counter-Terrorism Financing Rules and consumer protection, the realm of other regulators.
Not surprisingly, the high profile of digital currencies has prompted those mostly likely to be potentially affected by these changes to have a closer look.
Westpac, ANZ and Commonwealth are testing blockchain technology, while UBS has set up a blockchain research lab, Goldman Sachs has invested in bitcoin start-up Circle and NASDAQ is also experimenting with the technology.
But the value of bitcoin is the technology, not the currency. I cannot stress that enough. Forget the currency – focus on the technology.
Bitcoin enthusiasts predict it can impact anything involving a transaction. The question for business and governments is whether or not they will invest the resources to understand how blockchain could change the experience of their customers or citizens.
At the very least, they need to keep current with the latest applications of this technology and be aware of its flaws. No technology is perfect.
Because a transaction does not have to be financial or locally based – it’s on the internet so theoretically can cross boarders – governments will have to recognise that while national priorities are important, that cannot be the reason to avoid embracing these changes.
As technology rapidly decentralises across all parts of the globe, governments need to think in more decentralised ways when providing services such as passports, health records and contracts.
I can see this technology fundamentally changing regulators.
Regulators are obliged to take their direction from government. If government directs regulators to move rapidly, then that will be important.
But they are generally large and, in many instances, slow. They are focused on compliance and enforcing the law, itself a focus on the past.
While governments will be given many reasons not to embrace blockchain technology, they need to look for the reasons to do so.
Citizens will generally be hesitant and cautious, but with the encouragement of government they will grow and adapt.
Similarly, businesses, not just financial institutions, need to evaluate this technology for its ability to disrupt their existing operations or provide new opportunities.
Lee White is the chief executive of the Institute of Chartered Accountants Australia.
