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“Bitcoin accepted here.” You probably haven’t seen this sign too often, but chances are you will. After several cycles of hype and disappointment, digital currencies are slowly but surely gaining a foothold. Today, you can buy cleaning supplies at The Home Depot, pick out a gift at Shopify, book a flight on Expedia.com, hoist a draft ale at London’s Pembury Tavern—and pay for them all with Bitcoin.
While digital currency has received a lot of attention, the underlying technology—blockchain—may ultimately be the greater disrupter. A blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central authority. Blockchain maintains a continuously growing list of records, or blocks, in which the data can’t be altered retroactively. Eliminating intermediate agents increases security, decreases transaction time, and reduces processing costs.
Blockchain is already transforming the financial services industry. Traditional banks are implementing blockchains to streamline back-end processing and reduce costs dramatically. Banking start-ups are eyeing the technology. And they are siphoning blockchain experts from major banks.
The broader implications are staggering. Twenty-first century enterprises will abandon vertically integrated hierarchies for a peer-to-peer, networked structure. Even the Internet of Things will be touched by blockchain technology: As one pundit notes, “It turns out that this Internet of everything needs a ledger of everything.”
While the blockchain revolution is currently focused on financial services, it will soon touch applications such as music distribution, identity verification, and supply chain. Forward-looking CIOs are pushing ahead to identify use cases, initiate proofs of concept, and develop staffing plans. It’s quite possible that some will pay for these initiatives with digital currencies—a nice bit of serendipity.