Blockchain is the tech du jour and is showing up in all kinds of unexpected spaces – Finance? Retail? Energy? Rumor has it that this technology will change the world. Is this an inflection point or is it just another hype cycle?

Blockchain

1. There is no need for a central control center to approve each database change.
2. Blockchain is much more secure and is resistant to hacking.

How Blockchain Works

Blockchain is a distributed (stored across a network of servers) database that consists of data records – or transactions – that are contained within blocks that are timestamped and verified. Transactions are secured using mathematical techniques used in cryptography. Each block is linked to the previous using a hash function, forming a chain of data blocks.

As a peer-to-peer (or permissionless) database, any user can submit records and create new blocks. As new blocks are created, they must be verified against the chain of blocks that came before, creating a self-reinforcing and hack-proof database. Copies of the database are effectively stored throughout the network making it virtually impossible to re-write or corrupt. However, as last week’s Ethereum hack proves (a competitor to Bitcoin), the technologies being build on top of blockchain are still being tested.

In order to maintain the integrity of the database, blockchain architecture includes nodes with the independent capability of referencing a consensus ledger with the latest version of the database to maintain accuracy. Nodes in the network also have the ability to determine whether a record exists within the database, and resolve conflicts so that there are no overlapping records.

More recent implementations of blockchain also allow for executable programs and the blocks will also contain the output of these executables.

Blockchain – Bitcoin Connection

Blockchain was defined by Satoshi Nakamoto in 2008 and was included in the Bitcoin source code in 2009. Bitcoin was the first widespread implementation of blockchain and served as the testing ground for the technology. Blockchain proved to maintain a high degree of reliability and resistance to malicious activity.

Advantages of Blockchain

While not immediately apparent to an end-user, blockchain enables a revolution in the way databases are created, managed and stored.

1. There is no centralized command and control function. Each blockchain record is authenticated against the network which means that the entire network must validate the changes being made, resulting in reduced risk of errors or tampering.
2. There is no need for a trusted third party to maintain the security of the system. An attacker would essentially need to re-write substantial portions of the database in order to introduce false records, which makes the attempt very difficult and time-prohibitive.

What this Means

• Transaction costs can be cut because the database structure is open to any user.
• Point of transaction can be pushed down the chain because there is no need for centralized validation.
• Cost of database infrastructure and maintenance is greatly reduced because the system is distributed.
• Security is increased due to the network authentication structure of blockchain.

Business Applications for Blockchain 

As with many developments in data management technology, the broader implications of blockchain technology have been slow to dawn on the mainstream business community.

• The most developed, and most obvious, is the revolution of financial transaction systems. Blockchain enables peer-to-peer records to be created and validated – essentially creating the platform for individuals to pay one another electronically without the need for an intermediary.
• If you take transaction validation one step further, blockchain databases create the platform for certified, binding contracts of any type – home sales, car sales, services, the list goes on. Essentially, the ability to create referenceable, unalterable records enables commercial transactions.
• Governance of unwieldy systems such as sales process, supply-chain and human resources can be managed at the user level, simplifying processes across the enterprise.

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