Blockchain, the technology behind the bitcoin digital currency, is a decentralized public ledger of transactions that no one person or company owns or controls. Instead, every user can access the entire blockchain, and every transfer of funds from one account to another is recorded in a secure and verifiable form by using mathematical techniques borrowed from cryptography. With copies of the blockchain scattered all over the planet, it is considered to be effectively tamper-proof.

The challenges that bitcoin poses to law enforcement and international currency controls have been widely discussed. But the blockchain ledger has uses far beyond simple monetary transactions.

Like the Internet, the blockchain is an open, global infrastructure upon which other technologies and applications can be built. And like the Internet, it allows people to bypass traditional intermediaries in their dealings with each other, thereby lowering or even eliminating transaction costs.

By using the blockchain, individuals can exchange money or purchase insurance securely without a bank account, even across national bordersa feature that could be transformative for the two billion people in the world currently underserved by financial institutions. Blockchain technology lets strangers record simple, enforceable contracts without a lawyer. It makes it possible to sell real estate, event tickets, stocks and almost any other kind of property or right without a broker.

The long-term consequences for professional intermediaries, such as banks, attorneys and brokers, could be profoundand not necessarily in negative ways, because these industries themselves pay huge amounts of transaction fees as a cost of doing business. Analysts at Santander InnoVentures, for example, have estimated that by 2022, blockchain technology could save banks more $20 billion annually in costs.

Some 50 big-name banks have announced blockchain initiatives. Investors have poured more than $1 billion in the past year into start-ups formed to exploit the blockchain for a wide range of businesses. Tech giants such as Microsoft, IBM and Google all have blockchain projects underway. Many of these companies are attracted by the potential to use the blockchain to address the privacy and security problems that continue to plague Internet commerce.

Because blockchain transactions are recorded using public and private keyslong strings of characters that are unreadable by humanspeople can choose to remain anonymous while enabling third parties to verify that they shook, digitally, on an agreement. And not just people: an institution can use the blockchain to store public records and binding promises. Researchers at the University of Cambridge in the U.K., for example, have shown how drug companies could be required to add detailed descriptions of their upcoming clinical drug trials to the blockchain. This would prevent the companies from later moving the goalposts if the trial did not pan out as anticipated, an all-too-common tactic. In London, mayoral candidate George Galloway has proposed putting the citys annual budget on the blockchain ledger to foster collective auditing by citizens.

Perhaps the most encouraging benefit of blockchain technology is the incentive it creates for participants to work honestly where rules apply equally to all. Bitcoin did lead to some famous abuses in trading of contraband, and some nefarious applications of blockchain technology are probably inevitable. The technology doesnt make theft impossible, just harder. But as an infrastructure that improves societys public records repository and reinforces representative and participatory legal and governance systems, blockchain technology has the potential to enhance privacy, security and freedom of conveyance of datawhich surely ranks up there with life, liberty and the pursuit of happiness.

There are certainly many parallels. Like the internet, cryptocurrencies such as Bitcoin are driven by advances in core technologies along with a new, open architecture the Bitcoin blockchain. Like the internet, this technology is designed to be decentralized, with layers, where each layer is defined by an interoperable open protocol on top of which companies, as well as individuals, can build products and services. Like the internet, in the early stages of development there are many competing technologies, so its important to specify which blockchain youre talking about. And, like the internet, blockchain technology is strongest when everyone is using the same network, so in the future we might all be talking about the blockchain.

The internet and its layers took decades to develop, with each technical layer unlocking an explosion of creative and entrepreneurial activity. Early on, Ethernet standardized the way in which computers transmitted bits over wires, and companies

Early on, Ethernet standardized the way in which computers transmitted bits over wires, and companies such as 3Com were able to build empires on their network switching products. The TCP/IP protocol was used to address and control how packets of data were routed between computers. Cisco built products like network routers, capitalizing on that protocol, and by March 2000 Cisco was the most valuable company in the world. In 1989 Tim Berners-Lee developed HTTP, another open, permissionless protocol, and the web enabled businesses such as eBay, Google, and Amazon.

Unfortunately, the exuberance of fintech investors is way ahead of the development of the technology. Were often seeing so-called blockchains that are not really innovative, but instead are merely databases, which have existed for decades, calling themselves blockchains to jump on the buzzword bandwagon.

There were many pre-internet players, for example telecom operators and cable companies trying to provide interactive multimedia over their networks, but none could generate enough traction to create names that you would remember. We may be seeing a similar trend for blockchain technology. Currently, the landscape is a combination of incumbent financial institutions making incremental improvements and new startups building on top of rapidly changing infrastructure, hoping that the quicksand will harden before they run out of runway.

The existing financial system is very complex at the moment, and that complexity creates risk. A new decentralized financial system made possible with cryptocurrencies could be much simpler by removing layers of intermediation. It could help insure against risk, and by moving money in different ways could open up the possibility for different types of financial products. Cryptocurrencies could open up the financial system to people who are currently excluded, lower barriers to entry, and enable greater competition. Regulators could remake the financial system by rethinking the best way to achieve policy goals, without diluting standards. We could also have an opportunity to reduce systemic risk: Like users, regulators suffer from opacity. Research shows that making the system more transparent reduces intermediation chains and costs to users of the financial system.

Similarly, many view blockchain technology and fintech as merely a new technology for delivery maybe something akin to CD-ROMs. In fact, it is more likely to do to the financial system and regulation what the internet has done to media companies and advertising firms. Such a fundamental restructuring of a core part of the economy is a big challenge to incumbent firms that make their living from it. Preparing for these changes means investing in research and experimentation. Those who do so will be well placed to thrive in the new, emerging financial system.

How do you think this will change our idea of security infrastructure?

4. How will blockchain change our incidents and breaches in the future?