What are blockchains and why are the world’s biggest companies uniting to advance the technology?

The Linux Foundation announced a new initiative to support tech and finance giants in developing and implementing an open source standard for blockchain technology — the cryptographic backend that decentralizes the bitcoin and creates a secure tool without a centralized point of control. Should the venture succeed, the Internet economy may finally enter into the 21^st century, recognizing the potential of decentralization.

Dubbed the Open Ledge Initiative (OLI), collaborative effort includes IBM, Intel, Mitsubishi, and Cisco, along with financial institutions like J.P. Morgan, Wells Fargo, and the London Stock Exchange. An odd assortment of companies, especially when considering that decentralizing currency cuts out intermediaries and central agents — namely, the banks themselves.

To understand why these companies are vested in OLI, we have to first understand that the blockchain is a cryptographically protected, publicly hosted ledger, or distributed database, that lists every executed transaction and is shared by all nodes participating in a protocol, such the bitcoin protocol. It’s how the bitcoin economy stays on the same page across the entire Internet.

“Distributed ledgers are poised to transform a wide range of industries from banking and shipping to the Internet of Things, among others,” said Jim Zemlin, executive director at The Linux Foundation. “As with any early-stage, highly-complex technology that demonstrates the ability to change the way we live our lives and conduct business, blockchain demands a cross-industry, open source collaboration to advance the technology for all.”

Putting it lightly, blockchains are advanced, cloud-based spreadsheets whose standout feature is not the services they perform, but their ability to do so with the utmost neutrality, thereby omitting the need for a trusted human institution in electronic money transfers. Because it is public, permissionless, and immune to tampering and default, the blockchain may function as the authority, allowing us to securely circulate currency on our own, without any third-party fees associated with each transfer; banks charge fees as way to hedge against the inevitably of fraud.

For this reason, blockchain technology permits users to enter in “smart contracts” to do things like purchase a home or automobile directly from another person in a safe and secure manner, and even plan and schedule a mortgage.

So, why are banks interested in disseminating a technology that seemingly contradicts their best interest? That’s because it’s actually doesn’t. The ability to maintain secure smart contracts accelerates and simplifies the investment process, thereby netting a much higher return on investment when compared to the few dollars procured here and there off of transaction fees.

But’s not simply a matter of making payment transfers faster and easier online, the blockchain may be used to organize and coordinate complex projects spanning multiple corporate partners, such as when constructing a mega-structure or a building a prototype vehicle. The public ledger ensures “trust and accountability are built into supply chains,” as IBM so eloquently puts it, making sure that any inventory or schedule changes are openly viewable to all partners involved.

By uniting monolithic companies under the banner of an “open” ledger, The Linux Foundation seeks to ensure that the underlying integrity aspect that permits blockchains to flourish in the first place, will remain outside of the control of an exclusive few. The collaboration aims to develop an enterprise-grade framework that will encourage developers to build the robust, industry-specific applications, platforms and hardware systems necessary to support business transactions at a pace not achievable on an individual basis.

Source: ExtremeTech via IBM