By Mitchell Duncan, technical writer
If you’ve heard of Bitcoin or cryptocurrencies you’ve probably heard of blockchain. They are closely related inasmuch as the technology that makes cryptocurrencies possible is blockchain.
So, what is it?
Blockchain can be thought of as a distributed database that contains a list of records (called blocks) which are encrypted and linked together. Apart from its own data payload, each block contains an encoded fingerprint (hash) of the prior linked block, together with a timestamp of the transaction. The whole database forms a long, linked group; hence the name ‘blockchain’.
This database makes up what is known as a ‘distributed ledger’, i.e., it comprises records that are copied, shared, and synchronised and is geographically spread across multiple sites, countries, or organisations. There is no central administrator or centralised data storage for this database and this type of ledger is unique in that the records are linked together. Further, because the ledger is public, historical transactions are visible for all parties to see but no individual can alter any entry in the secured chain of blocks.
This shared data base is enabled by utilising another technology; a peer-to-peer network, most notably used by current music and file sharing applications. This network only included participants who collectively endorse and use a protocol for validating new blocks to the blockchain, thus preserving its integrity.
Will it change the world?
There are pundits in the IT and financial industries who view it as a “disruptive” technology (which can attack a traditional business model and destroy all before it in its wake). Others, however, view it as a ‘foundational’ technology; akin to the advent of the Internet and e-mail and the effect these technologies had on personal and corporate lives. They predict that blockchain may take many years to be accepted into widescale usage and having an effect on our lives.
The result of application of blockchain can be seen in how business works. Keeping ongoing records and an audit trail of past transactions is a core function of any business, whether they be sales of goods, disposal or acquisition of assets. These records are usually localised and not immediately available across the whole organisation; and are not amenable to the reconciliation of transactions across separate databases. To do so is time consuming, error prone and expensive. Blockchain provides a core technology to immediately ameliorate these problems in a secure, manageable way.
That being the case, this technology will take some years to establish itself within the economy. Adoption by industry will be gradual, and begin with low risk applications such as with internal databases for managing physical and digital assets, recording internal transactions, e.g. contracts for sale of plant and equipment.
However, if more pervasive sectors of the economy adopt blockchain ,e.g., the banking and financial services sectors and government procurement departments, then a new impetus would be give to the adoption of this technology by industry. It would pass the ‘critical mass’ stage of acceptance and pass on to mainstream usage. It remains to be seen whether blockchain will change the world, or simply be another sophisticated database.
Image credits: Davidstankiewicz
