technology can be broken down to three principles: (1) a distributed ledger system which (2)
creates a network to store data in a (3) trustworthy way. Firstly, a distributed ledger system
means that, instead of relying on a centralised instance that holds all decisive power, a network
is introduced where this power is distributed among a multitude of actors where, consequently,
no single instance possesses the majority of votes or shares. A centralised instance can be a
single person, like a judge, or institutions, such as universities or banks, whereas these bodies
are entitled to declare a certain matter as valid. Then, a ledger, for instance a record-keeping
book, is where verified records are stored. The most prominent example is offered by the
finance industry. Banks and financial services (centralised ledgers), for example HSBC or Visa,
verify account balances and transactions. Alternative models, in turn, rely on a distributed
ledger system where a consensus needs to be achieved in order to enact changes. In short,
traditional models require a middleman, or a trusted third party, whereas alternative models
skip this position and distribute the power over many peers. Secondly, a blockchain is nothing
else but a digital archive where data is stored. In the first instance, the technology was
developed to record transactions. However, it is arbitrary what kind of data it contains. Other
examples might comprise health data, certificates, or voting results. This information is utterly
sensitive, and granting safety and privacy has highest priority. In fact, this is the most delicate,
but also the decisive factor and leads to the third requirement: blockchains must be reliable and
secure. Faulty or manipulated data can lead to wrong account balances or transactions might
not be verified, which, in both cases, can have wide-ranging financial consequences.
None of the three aspects are new on their own; it is their combination that creates a novel,
immensely powerful, model. Yet comprehending its potential, especially considering the
involved risks, requires a brief comparison between decentralised and centralised models.
There are instances where centralised approaches undoubtedly offer the best solutions. For
example, a fire brigade or public transport system functions effectively with one expert body
taking on the responsibility to overlook and regulate those specific systems. However, in other
areas like politics, autocratic systems are vehemently criticised. We acknowledge the risks
related to centralised power that might lead to its abuse, to the preference of certain groups or
individuals, and consequently, discrimination towards others. Developed nations demand
democracy. Nevertheless, many parts of our societal structure are based on centralised
approaches. As shown, the financial system relies on banks and services; elections are run by
single bodies; also, the art market mostly relies on galleries and auction houses to conduct
sales. In case there is an issue related to the middlemen, or the mediating instance is problematic