You may have heard the word “blockchain” being bandied about a bit recently – especially with Facebook’s recent news that they are creating their own cryptocurrency. But what is blockchain and what impact will it have on your business?
What is blockchain technology?
Blockchain was invented back in 2008 by a person or group of people (no one really knows) called Satoshi Nakamoto. Although it was originally designed to be a digital currency basically, Blockchain has been hailed as a new type of internet by some as there are lots of other potential uses for the technology involved. The best thing about it for most people is that you don’t have to have a thorough understanding of it to use it, but it is always worth having a basic overview of such new technology as this to understand where technology is moving towards.
The authors of Blockchain Revolution define blockchain as “an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” Another way of looking at it is to think of it as a list of ordered records, called blocks, that have a timestamp and that are linked to a previous block – like a distributed database. A blockchain is basically designed as a secure database, and when used as part of the digital bitcoin currency it serves as a public record of all bitcoin transactions. Security is built into the blockchain system because it uses a distributed timestamped server and peer-to-peer network which is managed in a decentralised way autonomously.
One way to think about blockchain is to think of it as the internet of value, which is a good way to look at it. Before blockchain was invented if you published something on the internet then it could be accessed anywhere in the world. What blockchain technology does is to allow you to send information which is of value anywhere in the world, but (and its a big but) the information can only be accessed by someone who has the private cryptographic key. Even then, this key can only be used to access blocks that you own meaning that you are effectively transferring the value of whatever is stored in that section of the blockchain to somebody else.
Think about a digital medical record, for example. Each medical record would be a block with a timestamp recording when the record was created, and the information stored in this block cannot be changed retrospectively because we need the information stored within it to be precise and unmodified e.g. the diagnosis and the treatment required. The information contained in the block can only be accessed by the Doctor, who has a private key, and the patient, who also has a private key. If they want to share the information in that block with a third party such as a hospital or specialist, then they need to give them access via their private key. This would then become a blockchain for a medical database.
Bitcoin actually started as a way of transferring units of currency with a financial value, with the blockchain acting as a way of recording the transfer – a task that was traditionally undertaken by central banks. The use of blockchain also helps with the establishment of trust and identity, as it is virtually impossible to access a block within the chain if you don’t have the correct key. Theoretically, these keys could be stolen but they are pretty easy to secure with just a few lines of code at little expense. This should have a huge impact on banks, for example, as it means that the tasks they have to undertake to verify identities in order to record legitimate transactions and prevent fraud.
Why is the development of blockchain so important?
The advent of the internet has got us all very used to sharing information online, but this ease of sharing has not transferred over to the world of finance, with us preferring to stick to the centralised banks which can sometimes fell a little old-fashioned nowadays. Even the various online payment methods, such as PayPal, that have sprung up with the birth of the internet still require integration with either a credit card or bank to be used. What blockchain does is to offer a way of establishing contracts, establishing identity and recording transactions without the need for a ‘middleman’ in the financial services sector. This could mean a huge shake-up for the financial industry as at the moment it is the largest industry sector by market capitalisation and so replacing some of these tasks with a blockchain system could result in a massive increase in efficiency.
Thinking outside of the financial industry the benefit that blockchain technology brings to other industries is the establishment of contracts as each blockchain can be used to store all sorts of digital information in the form of computer code. This code can then be programmed to run whenever a named party enter their key – and therefore have agreed to a contract. It can also be used to set up a smart contact which automatically fills with information from external data feeds, such as news headlines and stock reports, when certain conditions are met.
Let’s go back to our medical example above, the doctor and patient have a private key which gives them access to the medical record of the patient, and they then give one of the keys to a blood glucose monitor which automatically records and stores the patients blood glucose levels and communicates with a medical device which delivers insulin so that the patients blood glucose is kept at a healthy level at all times.
As you can see the potential for the blockchain technology is endless, and hopefully, this article has given you a better idea of what blockchain is and how it works.
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