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15 November 2017

The growing influence of blockchain

Between 2010 and 2016 there was approximately a 1000% increase in the number of blockchain-related patent applications filed per year. This rapid growth appears to be continuing into 2017 and provides a good indication that this relatively new technological area is receiving significant interest and investment.

The distributed ledger system known as the blockchain provides a basis for foolproof, fraud free and transparent accounting. Cryptocurrencies in general, and Bitcoin in particular, rely on blockchain technology and are now regular features in the news. It is quickly becoming apparent that blockchain has the potential to provide fundamental change to the financial industry.

Here, we look at how this potential is being realised in patent applications relating to blockchain technology and cryptocurrencies, as well as how the potential of blockchain technology is being realised in other areas of business.

What is blockchain?

While blockchain is not limited to this example, it is useful to consider the context of financial transactions to explain blockchain.

Conventionally, a trusted middleman is required to undertake a transaction. For example, if person A in the UK wanted to transfer money to person B in the USA, then person A would ask a bank to transfer money from their account to person B’s account. This uses a centralised system in which the transaction from A to B goes via the bank, which is trusted to verify and record the transaction.

In contrast to the conventional centralised system, blockchain uses a peer-to-peer system, where computers in a network can communicate directly with each other. In essence, blockchain is a decentralised digital ledger of transactions that everyone on the network can see. In order for a transaction (for example from person A to person B) to be verified and recorded, it must be verified by participating operators in the system, known as miners1. Those miners do not represent all the participants in the system but are essential as they carry out the enormous processing tasks to make the system work. This method of verifying and recording transactions results in high system integrity, meaning that the results can be trusted to be correct.

Blockchain has a number of advantages over the conventional centralised system2. For example, blockchain provides potential for a reduction in the time taken to verify and record transactions, as well as well as reduced transaction fees. In addition, the high system integrity means the chance of innocent mistakes, as well as fraud, can be reduced or even minimised.

Figure 1.

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