The way we communicate and use our devices has changed in the last couple of years. More than ever information is not one to one but it’s many to many, highly distributed and moves away from centralisation. In this model everyone is a participant and not just an inert recipient. This fact brings an increasing neutrality to our communications. In this sense the blockchain is no different.
Most people have heard of Bitcoin and some even use it at times. But why is everyone talking about the blockchain and not Bitcoin anymore? The blockchain is the underlying technology behind digital currency Bitcoin. As the digital currency made its way into people’s lives by allowing secure and private transactions of Bitcoins, the infrastructure used to perform these transactions started getting more and more attention.
So, what is blockchain?
The principle behind the Blockchain is fairly simple – a blockchain is a chain of data blocks.
A transaction in the blockchain is built into a small data blocks, which are linked and then synced on every node in the network. In simpler words this allows to see any transaction ever executed (with currency in the case of Bitcoin). Thanks to the state of the art of cryptography the data is secure.
Organisationally decentralised and logically centralised
The blockchain allows for the database to be logically centralised in every network client. It works like a trust protocol in a way. It creates trust between a large number of people that don’t know each other and therefore would not normally trust each other. The way it accomplishes this is by giving these people a ledger that everybody has access to but that no one can forge.
The blockchain is basically a distributed database. Think of a giant, global spreadsheet that runs on millions and millions of computers. It’s distributed and open sourced, meaning anyone can change the underlying code and see what’s going on. Truly peer to peer as it doesn’t require powerful intermediaries to authenticate or to settle transactions.
But… is the Blockchain safe?
It uses state-of-the-art cryptography. A transaction is recorded in a block that is then added to the chain and distributed throughout the platform. So for someone to forge that particular transaction, and because they are all linked blocks, they would have to change the entire history of transactions across a countless number of computers on a distributed platforms. This, of course, is not practically feasible.
This underlying, distributed-database technology enables us to have a truthful and immutable record of everything.
Why is this different from what we have now?
Currently, most people use a trusted middleman such as bank to make a transaction. But the Blockchain allows consumers and suppliers to connect directly, removing the need for a third party.
Using cryptography to keep exchanges secure, Blockchain provides a decentralised database, or “digital ledger”, of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.
The idea of using the Blockchain is becoming so disruptive that banks and insurers are making every effort to figure out how to use it.
Blockchain usage is set to increase significantly in the next decade, as banks, insurers, pharmaceutical companies and tech firms see the technology as a way to speed up settlements and cut costs.
There are millions of people in the world without a bank account. Some of these people can not rely on banks to perform their business transactions. The blockchain will help them by allowing them to do transactions between one another without the need to rely on any institution to mediate the process.
This sounds great. I want to know more.
The Blockchain relies on a business network, in which members exchange items of value through a ledger, which each member possesses and whose content is always in sync with the others.
A business network
- A decentralised peer-to-peer architecture with nodes consisting of market participants (such as banks and securities firms)
- Protocol peers validate and commit transactions in order to reach consensus.
It can act as a source of truth for businesses doing transactions using blockchain:
- Records all transactions across the business network
- Shared among participants
- Replicated so each participant has their own copy
- Permissioned, so participants see only appropriate transactions
Often, companies have multiple ledgers for multiple business networks in which they participate. It can be used for recording and totalling financial transactions.
A smart contract can include a digital asset which is anything that has an owner and can be converted into value. Digital assets can be tangible or intangible. It can also include a digital representation of a set of business rules:
- Embedded in the blockchain
- Executed in a transaction
- Verifiable, signed, and encoded in a programming language
- For example, it defines conditions under which corporate bond transfer occurs
Entries in the ledger are synchronised to all ledgers in the network. Consensus ensures that these shared ledgers are exact copies, and lowers the risk of fraudulent transactions since tampering would have to occur across many places at the exact same time.
- All parties agree to the transaction and validate it via peer network
- Rules can also be established to validate transactions
- This trusted and trustless participation makes commitment possible at a low cost
IBM Blockchain uses a “pluggable” consensus system to meet the needs of different industry segments. IBM Blockchain is based on the open source Hyperledger Project from the Linux Foundation.
Privacy and confidentiality
Ability to protect records with a personal digital signature — blockchain generates a private and public key to seal that record.
- It’s encrypted, hashed, and sent to the network of validating nodes
- Unique IDs for customer, invoice and reference numbers
Although the ledger is shared, sometimes participants require:
- Private transactions
- Identities that cannot be linked to specific transactions
Transactions need to be authenticated, and cryptography is central to these processes.
What industries (can) use blockchain?
The short answer is yes. The Banking industry was the first one to implement it but there are many other industries that can benefit from the blockchain.
In the case of Internet of Things (IoT), we’re going to need a blockchain-settlement system underneath. Soon your refrigerator, dishwasher, coffee machine and many other appliances will be able to communicate to order and pay for the items/products. Banks won’t be able to settle trillions of real-time transactions between things.
From storing medical records to “fixing” global warming, there are already a few concepts of how to use the Blockchain.
Probably one of the simplest and straightforward blockchain implication is fighting counterfeit of luxury goods, from Luis Vuitton bags to swiss watch. By simply linking digital certificates to purchased goods gives buyer a much higher confidence in authenticity of the item. There are now quite a few startups appearing in this space.
Earlier this year a project initiated by Accenture been announced to solve billion dollar counterfeit drug problem. The main problem has not only been fake imitation drugs, but also products from established companies that do not contain the ingredients they are meant to, essentially being placebos. That could be solved if there was a (digitally) tracked supply chain we could actually trust.
Food supply chain
Literally yesterday IBM announced its partnership with Walmart and Tshingua University to bring safer food to the table of Chinese families using blockchain technology. The pilot project is set up to digitally trace pork meat from suppliers to Walmart shelves.
Creating smart health profiles that could provide easy access to health services while protecting privacy and security of individual health, financial, and citizenship information.
Making use of the Ethereum blockchain, smart meters, and a bidirectional grid, energy production and usage is reliably tracked; and solar energy can be securely bought and sold between neighbours. Transactive Grid hopes to develop an interface that would allow users to specify their energy preferences.
Global Climate fix
An alternative carbon pricing instrument could be developed in the financial markets that is simple and fair, and designed to be transparent and traded internationally.
In this system a deposit would be paid for every ton of fossil CO2 created and the deposit recorded in a blockchain digital asset, call it a carboncoin.
Every time you emit carbon, you pay for it with a kind of carbon coin. Every time you sequester carbon, you get paid in carbon coins. When all carbon coins have been redeemed, the world is running at net zero carbon.
This is amazing, can we have it right now?
Although there are already some industries testing this technology it’s still early to tell how long it’ll be till the worldwide adoption. The stock market is taking the lead on this and Nasdaq is looking to patent a method by which a blockchain could be used to secure records of exchange transactions.
Like all technological breakthroughs the blockchain brings some challenges. Although it will help companies reduce costs, it will mean that some jobs will be made redundant. This fact alone brings enormous concerns. Technology will help us move forward but it’s up to us as a society to make sure that no one is left behind because of it.
The blockchain is going to bring amazing advances and some challenges as soon as it starts to be used in the different industries, the least we can do is be prepared to contribute.