Blockchain and cryptocurrency continue to intrigue our society’s social, political, and economic underpinnings. Despite their reputation as independent, autonomous, and seamless ecosystems, these technologies have remained highly controversial and subject to different legislations from time to time.
The truth is that the meanings of these terms and their corresponding jargon still elude many people’s comprehension. For one, cryptocurrencies are commonly misunderstood with their underlying technology, ‘Blockchain’, and therefore get generalised. While much has changed in recent years, these terms are aligned so closely that a great deal of confusion still exists.
In this article, we will help demystify the evolution of ledgers into blockchain networks, what makes them different from crypto, and their vast applications across various industries. With that, we will also examine blockchain’s accounting and regulatory benefits and how it benefits broader vertical markets such as real estate.
The evolution of ledgers
The invention of ledgers deeply coincides with the dawn of civilisation. From the ancient Mesopotamian tablets to the robust blockchain networks we see today, ledgers undoubtedly set the foundation of an organised financial system in society. The concept behind a ledger was to document data outside a person’s memory, making records efficient and far less prone to errors. But more importantly, ledgers allowed people to develop trust in the system without the fear of being cheated.
The first ledger
The first recorded use of ledgers dates back to ancient Mesopotamia some 5,000 years ago when pictographs were used to record quantities on clay tablets. For the first time in history, contracts, food disbursements and other administrative data would be inscribed on objects. This effectively solved many socio-economic problems, preventing disputes in financial dealings.
However, as societies became more populated and complex, so did recording methods.
Later in 1340 AD, a new form of bookkeeping emerged in Italy. This new system of paper-bound ledgers allowed merchants to record items based on a logical relationship between debit and credit. This double-entry ledger was swiftly adopted, which made Italy a significant economic power in that era. This was followed by the emergence of IOUs, or commodity-backed currencies. The “gold standard” was the basis for the international monetary system for a century from 1870 till 1971, when the United States unilaterally terminated the convertibility of the US dollar to gold from foreign central banks, effectively ending the Bretton Woods system.
Some 600 years later, fiat money started to predominate globally, allowing governments to make ledger entries through issued currency. Unlike tangible commodities such as gold and silver, fiat money had no intrinsic value, and its value depended on supply and demand and the creditworthiness of the issuing government.
Bitcoin, the first global public ledger
Although the idea of a digital currency using timestamps was initially introduced in 1991, it wasn’t until 2009 that an anonymous creator known by the pseudonym “Satoshi Nakamoto” officially introduced it. Bitcoin combined the time-tested integrity of Mesopotamian tablets, the data recording capabilities of a paper ledger, and currency exchangeability, taking it to the next level with a purpose-built, decentralised ledger called “blockchain”. The value of Bitcoin comes from the scarcity of supply, increasing demand, and its characteristics to act as a store of value. With near-instant connectivity through World Wide Web, Satoshi created the first decentralised cryptocurrency.
Difference between blockchain and crypto
Even though there is an apparent disparity between the two terms, unfortunately, blockchain is often taken synonymously with Bitcoin. Since Bitcoin became the first application of blockchain technology, people inadvertently used ‘Bitcoin’ as verbiage for blockchain.
Blockchain is a distributed ledger technology that forms a chain of blocks. Each of these blocks uses information and data that are bundled together and verified. These blocks are validated and strung onto the chain of transactions based on the previous blocks. This information is permanently recorded and timestamped, making it impossible to be tampered with or counterfeited.
On the other hand, a cryptocurrency is a tool or resource on the blockchain network. It is used as a digital payment system that is decentralised and accessible throughout the world. Through blockchain, crypto transactions are immutably recorded, forming a chain, with each additional transaction reinforcing the previous one.
What is blockchain? ELI5
Think of it like this. You and millions worldwide have record-keeping ledgers, all of which are connected, so when any record is updated in one, it is simultaneously added to all others, with complete information of who added it and when. Nobody can erase information already on the ledgers; you can only add new data and every new page of information links with the previous page. To tamper with records, you’d have to have all those millions of records in the same place and change them all at once, which is a mathematical anomaly.
This unique feature protects blockchains against data manipulation. Now you can keep any record on those ledgers, from assets to money, to virtual money, that all the ledger holders have created. This virtual currency (crypto) is just one use of an otherwise foolproof record-keeping system.
Applications of blockchain in different industries
Blockchain technology has seen an increasing adoption rate in recent years. Blockchain networks are being deployed for products and services that depend on faster, more secure, and cost-effective modes of data sharing. Blockchain-driven applications are growing exponentially across many financial, administrative and legal avenues. These include:
- Real Estate
- International Payments
- Food Safety
- Trade Finance
- Supply Chain Management
We’ll now limit our use case to Real Estate and explore this further.
Blockchain in real estate
Real estate is unarguably one of the fastest-growing markets for blockchain-driven applications. Several startups have emerged worldwide, utilising blockchain technology to make real estate more accessible and transactions faster, transparent, and secure.
Blockchain has ushered a complete shift in the real estate market, assuming the same functions of listings, payments and legal documentation but far more accurately and cost-effectively. High-value assets such as real estate can now be bought, sold, or traded remotely on blockchain networks without intermediaries. In smart contracts, all legal documentation is recorded and validated on the blockchain network, eliminating invalid claims and intermediaries.
Unlike traditional markets, the real-estate value on a blockchain network cannot be inflated by intermediaries such as brokerages and marketing firms. This way, investors can save costs that are charged by these third parties involved in the sale and purchase of the property. It also makes the entire process much faster as the back-and-forth between the middlemen is knocked off.
Since blockchain allows real estate assets to be transformed into fractionalised units, their liquidity significantly increases as they can now be readily traded in the marketplace. This also lowers the barrier to investment, where even the common man can purchase real estate without worrying about huge lump sum payments. As a decentralised technology, blockchain commands a system of trust and transparency that makes information accessible to all peers on the network.
That being the case, chances of fraud are significantly reduced, giving investors the confidence they need for conducting high-value transactions.
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Mirza Irfan Baig
Senior Content Writer