The revolution fueled by the latest and greatest disruptive technology is underway and spreading globally. This digital revolution is based on a technology platform called the blockchain which is characterized by its public, shared, and trusted database. The transactions captured are accounted for in a trusted ledger that records transactions over a peer-to-peer network of computers accessed via the Internet.
A common practice today, people around the world connect through the internet. In 1990 Sir Tim Berners-Lee, a British computer science professor, invented the World Wide Web. This advancement helped shape the internet we know today. As the most common means of accessing information online in the form of websites and hyperlinks, the World Wide Web became a global game changer. While still in its infancy, the internet has evolved into a digital gateway that allows billions of people around the world access to a vast trove of digital treasures each day.
This brings us to the blockchain and its revolutionary impact. Blockchain is changing the way people around the world transact with each other. This incredibly far-reaching technology is still in its infancy, yet it has already changed the dynamics that exist between buyers and sellers of goods and services. It has also revised the way people interact and engage with government agencies, as well as fortified the authentication of transactions of legal entities, organizations and nations. Blockchain combines the openness of the internet with the security of cryptography to produce a faster, safer way to verify key information by ensuring safety, transparency and trust.
At its core, a blockchain records transactions. Think of the blockchain as a traditional ledger – only digitized. The types of transactions recorded on a blockchain take the form of any movement (transfer) of payment, goods, services and data. The technological framework that a blockchain sits on was built for the cryptocurrency Bitcoin. This symbiotic relationship of Bitcoin sitting on a blockchain causes confusion. Many people erroneously use the two terms interchangeably. However interdependent the two are, they are technically and functionally different. Blockchain is able to support a wide range of applications and perform a myriad of functions including supporting a raft of cryptocurrencies.
The blockchain performs a myriad of critical functions. It is designed and used for peer-to-peer payment services, supply chain tracking, secured record keeping and for legal documents transfer. This also used for validation of transactions, as well as the retrieval and storage of an exploding amount of data. Its proof of concept as a technological disruptive innovation is traced to Bitcoin; however, its future starring role in the world’s economy extends far beyond cryptocurrencies.
According to the Economist, the first blockchain was conceptualized in 2008 by an anonymous person, later known as Satoshi Nakamoto. The blockchain technology was activated in 2009 where it functioned through Bitcoin as a public ledger for transactions. Blockchain made Bitcoin the “first digital currency to solve the double spending problem without need of a central server,” the Economist said.
The Bitcoin design is based on the blockchain’s technological framework. It has served as inspiration for other cryptocurrencies the Economist said.
The power and value of the blockchain seems to have no limit. Blockchain is designed to store information in a way that makes it virtually impossible to add, remove or change data without being detected by other users. Transactions are verified by a central authority like a government or credit card cleaning house. Blockchain applications are replacing these centralized systems with decentralized ones. Verification for decentralized systems comes from multiple users. For developers of software programs and mobile applications, the blockchain reflects a paradigm shift in how they code. For intermediaries performing a “trust” function, the blockchain represents a threat to their business model.
The threat is real due to the increased levels of transparency now found in the way business is conducted around the world. That’s because the increased levels of transparency are disrupting the intermediaries’ standard operating procedures. Though anyone can inspect the blockchain database and the “blocks” contained therein. No single person or government entity controls the blockchain. This lack of control by few gives yields to a new paradigm where control – or at least, access – is open to most network users. Because the blockchain is continuously replicated on most nodes of the network, built-in redundancy and no single point of failure exists. By eliminating the single point of failure, the blockchain solves a problem that was commonly found in the design and operation of centralized systems.
A blockchain’s function is simple but important. It collects and collates data into blocks. Then it “chains” the blocks securely together using cryptography. On the decentralized network, data (in the form of transactions and records) is combined with other data representing transactions/records into a block like a traditional computer database. Each transaction record is time-stamped. When the entire block is completed the block gets its own time stamp. This makes all recorded information sequential to avoid duplicate entries. By doing so, double counting and fraud is mitigated.
Other participants on the network may be sending out their own blocks at the same time. The time stamps ensure that data is added in the right order and all participants have the latest version. Once ordered correctly, the completed block is apportioned across the distributed network and linked to its chain. The transaction is uniquely identified by an alphanumeric string; these uniquely identified addresses are publicly viewable on the blockchain. Although other participants on the blockchain may be sending out their own blocks at the same time, the sequentially ordering of the time-stamped blocks ensures all participants are viewing the latest version of the recording and ordering process.
The key to a blockchain’s security is a concept called a “hash.” A hash is formed using cryptographic math with the end result making the linkage between blocks secure and unbreakable. Cryptography keeps the blockchain secure by creating the hash a function that takes the data found in each block and linking it to others. The outcome is a unique string of alphanumeric. Thus, each hash is like a fingerprint – unique and non-replicable. The Cryptography math that produces the hash is a straightforward function and only works in one direction. By starting with the hash it is exceedingly difficult to recreate the original block.
The blockchain contains private keys. A private key is a string of letters and numbers that works like a password. It “unlocks” a blockchain address which allows transactional parties to establish identity and identify responsibility for making and receiving payment. It also verifies data that has been collected, collated and contained in the blockchain. The private key uses cryptographic math in creating a hash of the transaction address. The blockchain assembles transactions in a digital ledger. These transactions that are assembled and recorded in this digital ledger reflect movements of goods and services, payment or secure and validated data. But the blockchain also allows for the capture, order, storage and retrieval of other types of “transactions” that contain personal information. These include medical records and financial materials.
The handling of transactions follows the instructions contained in a smart contract. The blockchain uses smart contracts that automatically execute fixed sets of rules that have been agreed by both transaction parties. When it is executed it produces data that is captured and contained in the network’s digital ledger.
The blockchain revolution marches on. Its role in accelerating the next wave of technological disruption is evident; the blockchain’s value increases exponentially with each recording, capture and linkage of secured data that are linked together in a peer-to-peer network. Some subject matter experts refer to the blockchain as the “Internet of Value.”
Whatever it’s called, blockchain is the present and future. Embracing blockchain’s transformative innovation acknowledges the technology’s disruptive nature. Understanding its place in the evolution of technology’s reach into our lives demonstrates an awareness that history has shown that technological disruption results in dramatic changes to individuals, institutions, organizations and societies. Although blockchain’s capabilities are deceptively simple, to overlook its revolutionary impact is to disregard the fact that this digital revolution is transforming our lives and revolutionizing the global economy.