Blockchain platforms generally consist of thousands or even millions of interconnected computers. Any data to be stored is validated first by those computers.
RICO USTHAVIA FRANS
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Many people claim they know about blockchain, but there are only a few who really understand and realize its potential and impact. Blockchain is not just about Bitcoin. Blockchain is an application of distributed ledger technology that allows distributed processing work independently without a central authority. Bitcoin is just one of its uses.
What is a distributed logging system? If you get married at the registry office, your marriage records will be kept there. To check your marital status, one should ask the civil registry office as the central institution that records it. This is an example of a centralized record-keeping system.
However, if you invite family and friends to your wedding reception, your marital status will be recorded in the minds of every guests. To find out if you are married or not, one can simply ask a few guests to get consensus about your marital status. This is an example of a distributed logging system.
Well, blockchain technology allows us to eliminate dependence on such institutions.
Many agencies act as a centralized recording institution. For example, the National Land Agency that records land ownership, the tax office that records our tax payments and health insurance companies that record the insurance limit that we can still use. So are banks. Even though we are given a bankbook, the valid balance and transaction data are those that are recorded centrally in the bank's bookkeeping system. Well, blockchain technology allows us to eliminate dependence on such institutions.
Blockchain platforms generally consist of thousands or even millions of interconnected computers. Any data to be stored is validated first by those computers. Once there iss consensus that the data is valid, the data is stored on all computers that are members of the blockchain.
Each data block is cryptographically linked to the previous data block so as to form a long data chain. Therefore, it is called blockchain. To change a record, hackers have to hack millions of computers scattered around the world. It is very difficult or even impossible. This is why the data recorded on the blockchain are called immutable and tamper-proof. Once logged, it is immutable and difficult to hack.
Blockchain technology was first used to build Bitcoin based on a technical journal published by Satoshi Nakamoto in 2009. Bitcoin is basically a peer-to-peer computer network for recording balances and transferring cryptocurrency without a centralized authority like a bank. All data is recorded in a distributed manner by millions of computers. Every transaction is carried out by users directly without a bank as an intermediary.
Not only cryptocurrencies, blockchain can also be used to record many other things. If land ownership is recorded using blockchain, the status of ownership and transfer will be recorded by thousands or millions of computers in a transparent manner.
In this case, the role of the National Land Agency as a centralized recording authority can be eliminated. The land mafia will find it difficult to act because there is no longer a centralized party with whom to collude. Indeed, there are still gaps when recording is done, but they can be mitigated with adequate controls.
The challenge is whether the National Land Agency is willing to use blockchain as a technical solution to ensure safe and transparent records, which incidentally reduces its role as a centralized authority. For that, it takes courage and strong political will.
With Ethereum, we can do digital processing by writing and executing programs called smart contracts.
Apart from functioning as a distributed records platform, blockchain can also function as a distributed computing platform. In 2014, Vitalik Buterin and some of his friends built Ethereum as a blockchain-based distributed computing platform. With Ethereum, we can do digital processing by writing and executing programs called smart contracts.
Through smart contracts, we can build independent digital processes without a centralized authority. For example, we can create savings or loan products based on smart contracts so that all transactions and records are executed automatically without the need for banks or financing companies.
We can also build insurance products without an insurance company. The insured party and the party providing insurance bind themselves directly using a smart contract without an insurance company as an intermediary. Such independent distributed financial services are called DeFi (decentralized finance).
If there is more DeFi, the world of finance will be disrupted. The role of traditional/conventional financial institutions and their regulators is diminished or even lost. Banks, financial institutions and fintech services that are now building platforms and businesses with the concept of a centralized authority must anticipate their reduced role as business intermediaries.
Regulators such as the Financial Services Authority (OJK) and Bank Indonesia also need to anticipate their diminishing control over the financial industry if that happens.
Systems built on blockchain using smart contracts are called decentralized apps (dApps) because the applications created can run in a decentralized and independent manner. Digital platforms such as social media, e-commerce, online transportation and online travel agencies must start thinking about the possibility of disruption by dApps.
With a dApp, all policies and business models that were previously controlled and regulated centrally by the platform owner will be carried out in a distributed manner with a consensus mechanism from stakeholders that includes the platform users.
Imagine, one day, app-based motorcycle taxi drivers and users can vote on the platform's policies. Also imagine that every user of an e-commerce platform can determine the direction of feature development and get a profit share based on the transactions they do.
With blockchain, platform users can participate in the management of the platform and even become owners. Although blockchain technology is still in its very early days, existing digital platform owners should be watching out for it.
So, blockchain technology is not only used for cryptocurrencies like Bitcoin, but is also a distributed computing and recording technology that has the potential to disrupt various industries.
Regulators as well as traditional industry players must start thinking about how to take advantage of and mitigate this potential disruption of blockchain technology.
RICO USTHAVIA FRANS,Member of the Steering Committee of the Indonesia Fintech Society (IFSOC)
(This article was translated by Hendarsyah Tarmizi)