FAQ: What is blockchain and how can it help business?
Blockchain sounds like a way to keep boats anchored, which isn’t a bad analogy, considering what the technology purports to do.
While some IT experts herald it as a groundbreaking way of creating a distributed, unchangeable record of transactions, others question the nascent technology’s usefulness in the enterprise, which has traditionally relied on centrally-administered databases to secure digital records.
Even so, companies are moving fast to try and figure out how they can use it to save time and money. And IT vendors are responding to customers calls for info, with some already looking to include it as part of their services.
What is blockchain? First and foremost, Blockchain is a public electronic ledger — similar to a relational database — that can be openly shared among disparate users and that creates an unchangeable record of their transactions, each one time-stamped and linked to the previous one.
Each digital record or transaction in the thread is called a block (hence the name), and it allows either an open or controlled set of users to participate in the electronic ledger. Each block is linked to a specific participant.
Blockchain can only be updated by consensus between participants in the system, and when new data is entered, it can never be erased. The blockchain contains a true and verifiable record of each and every transaction ever made in the system.
Why is blockchain suddenly getting so much buzz? In a word, Bitcoin. Bitcoin is a wildly hyped cryptocurrency, a method of transacting payments over an open network using digital bits and encryption. It was the first ever decentralized one when it was created in 2009.
The term bitcoin was first… well, coined in 2008 when Satoshi Nakamoto wrote a paper about a “peer-to-peer version of electronic cash [that] would allow online payments to be sent directly from one party to another without going through a financial institution.”
OK, so what exactly does blockchain do? As a peer-to-peer network, combined with a distributed time-stamping server, blockchain databases can be managed autonomously. There’s no need for an administrator. In effect, the users are the administrator.
What industries are using it? According to Angus Champion de Crespigny, Ersnt & Young’s Blockchain Leader, the technology is seen has being well suited to propagate security policies and identity access management.
The fact that each blockchain record contains a unique cryptographic hash that is used to track that block, as well as others in the associated chain, means the data cannot be modified, making it perfect for record keeping and auditing purposes.
Financial services (see Bitcoin) has been the first industry to jump on board the blockchain wagon. But other industries — such as healthcare — have been quick to explore its use, too.
For example, IBM Watson Health and the U.S. Food and Drug Administration are exploring using blockchain for secure patient data exchange, including sensitive electronic medical records, clinical trials and data culled from mobile devices and wearables.
While its still early days, de Crespigny noted that more vendors are producing business-specific products, “which is really what’s needed.”
How can it help those industries? Blockchain eliminates huge amounts of recordkeeping, which can get very confusing when there are multiple parties involved on a transaction, according to Saurabh Gupta, vice president of strategy at IT services company Genpact. “Blockchain and distributed ledgers may eventually be the method for integrating the entire commercial world’s record keeping,” Gupta said in an email to Computerworld.
Genpact, for example, just released a service for finance and accounting that leverages blockchain-based smart contracts to capture all terms and conditions between a customer and an organization for an order.
Accenture recently released a report that claimed blockchain technology could reduce infrastructure costs for eight of the world’s 10 largest investment banks by an average of 30%, “translating to $8 billion to $12 billion in annual cost savings for those banks.”
The Bank of England is considering ways that it can use blockchain for payments, clearing and settlement.
In another example, Acronis introduced blockchain technology in its True Image 2017 data backup software. The blockchain platform is used as a data certification and verification element — a type of electronic document signing or notary service.
Are there drawbacks to using it? The same thing that makes blockchain attractive, its distributed nature, also makes it a potential security threat. In the enterprise, centralized control can translate into security. With blockchain, which is decentralized, the technology works best when information sharing is a necessity across multiple, often disparate, parties.
Central control, as in a single administrator, can also be a double-edged sword since a single point of control is also a single point of failure, according to Serguei Beloussov, CEO of Acronis. While Beloussov himself believes blockchain is secure, he has several computer scientists on his staff that believe it’s not — and say it can be penetrated.
Then there’s Satoshi Nakamoto. That could be one person’s name or a pseudonym for a group of developers — no one appears to know for sure. But Nakamoto holds one million bitcoins, or the equivalent to $1.1 billion. That has led some in Beloussov’s company to speculate that the whole thing could be a giant Ponzi scheme, though there’s no evidence to indicate that.
Has the encryption ever been broken? No. “That’s not how this sort of thing will get broken. It’ll get broken because of some insecurity in the software,” said Bruce Schneier, a cryptographer and security expert. Schneier was referring to the fact that that there are many versions of blockchain, such as Ethereum, a custom-built platform that was introduced in 2013 by then 19-year-old developer Vitalik Buterin. Additionally, vendors such as Microsoft and IBM have introduced blockchain capabilities in their software and services.
Alex Tapscott, the CEO and founder of Northwest Passage Ventures, a venture capital firm that invests in blockchain technology companies, said while no system is “unhackable,” blockchain’s simple topology is the most secure today.
“In order to move anything of value over any kind of blockchain, the network [of nodes] must first agree that that transaction is valid, which means no single entity can go in and say one way or the other whether or not a transaction happened. To hack it you wouldn’t just have to hack one system like in a bank… you’d have to hack every single computer on that network, which is fighting against you doing that.”
The computing resources of most blockchains are tremendous, Tapscott pointed out in an online interview, because it’s not just one computer but many computers. For example, the Bitcoin blockchain harnesses anywhere between 10 and 100 times as much computing power compared with all of Google’s serving farms put together.
“So again, not unhackable, but significantly better than anything we’ve come up with today,” Tapscott said.
Are there different blockchain permutations? Yes. There are several general uses for blockchain platforms. There are public blockchains, which allow anyone to see or send transactions as long as they’re part of the consensus process There are consortium blockchains, where only a pre-selected number of nodes are authorized to use the ledger. For example, a group of banks and their clearinghouse might use blockchain as part of the trade-clearing where each node is associated with a step in the verification process.
And there are private blockchains, where the ability to write to a ledger is restricted to a single organization.
Where does it go from here? Regardless of who developed it, businesses should always take a pragmatic approach when adopting any new technology, according to Gupta.
“You can’t ignore it, but you can’t just blindly adopt a new technology. The key is to see if it makes sense for your business problem,” Gupta said.
Blockchain is currently emerging from concept to reality as products that use it are just now coming to market.
There are, however, more than 15 blockchain distributed ledger platforms being developed in parallel, with specialist applications on top of them, according to Gupta. The industry will need some standardization to encourage widespread adoption.
“Such challenges are common with new technologies,” he said, “and even with this concerns, blockchain is seeing a lot of interest.”
This story, “FAQ: What is blockchain and how can it help business?” was originally published by Computerworld.