Blockchain: a revolution in the making
Blockchain is a term that many people have heard about, but very few still fully understand. However, this amazing innovative technology is going to revolutionise the business world by radically changing the whole idea of controlling secure transactions and information management.
Blockchain – what is all the fuss about?
The blockchain concept has been attributed to Satoshi Nakamoto, which is a pseudonym for the person or persons who developed the technology in 2008. The first blockchain created was designed to support the introduction of the digital bitcoin cryptocurrency, by providing a secure record of every bitcoin transaction without the need for a bank or financial intermediary. However, over the last decade the use of blockchains in business has had wide reaching impacts way beyond recording basic financial transactions.
Blockchain technology is now used to record all sorts of information ranging from medical records to the processing of passport applications. Blockchains enhance business efficiency because they eliminate duplication of effort, and reduce the need for costly intermediaries.
So, what exactly is a blockchain?
Put quite simply a blockchain is an immutable digital ledger that can record managed transactions and tracks assets over a decentralised network. Pretty much any item of value can be traded, transferred and tracked using a blockchain, which reduces both inherent risks and costs for all concerned. The assets could be tangible, such as property, or intangible like an identity.
In practical terms a blockchain stores information across a network of distributed computers; with no one person owning the system, but anyone can use it and help to operate it. As a result, it is incredibly difficult for any single person to edit a block, corrupt the information or take down the blockchain.
Unlike business systems, where it is the norm for one central database to be the secure repository of all business data and information with a central processor, blockchain technology requires that all blocks of data are stored on every single computer in the blockchain. The security that this builds into a blockchain system is enabled through the peer-to-peer network configuration, with the resultant block data storage managed autonomously and in a decentralised way.
The blockchain architecture allows all participants the ability to share a block that is synchronised through peer-to-peer replication each time a transaction occurs. This approach means that each participant in the network acts as both a contributor of, and a subscriber to, all of the information contained within it. Each participant is able to receive or send transactions to others by adding blocks, and the data is automatically synchronized across the whole blockchain as it’s transferred.
The key features of a blockchain
A blockchain has a number of distinct features that differentiates it from more traditional transaction processing systems:
- Single source: the shared blockchain ledger provides participants with one place to determine the completion of a transaction, or the ownership of an asset.
- Consensus: for any single blockchain transaction to be valid, all participants must agree on its validity.
- Origin: all participants know where any asset originates from, and how its ownership may have changed over time.
- Integrity: No participant can meddle with a transaction after it has been recorded to the blockchain ledger. Indeed, should a transaction be recorded incorrectly or in error, a further transaction must be added to the blockchain to contra the entry, with both transactions visible to all participants.
All of these features make a blockchain unique and incredibly secure.
How is a blockchain so incredibly secure?
There are three elements that contribute to blockchain security
- Before a block of information can be added to the blockchain it must have its own unique digital finger print, called a hash, together with the hash to the previous block. The hash is a unique cryptographic code that identifies a block and all of its contents. Therefore, any attempt to change the block content will change the hash, so it will be no longer validated as part of the chain.
- A blockchain requires ‘proof of work’, which is an algorithm used to confirm transactions and produce new blocks to the chain. This process has the effect of slowing down the creation of a new block for several minutes. Therefore, it would very hard to tamper with the content of a block as it would require changing the proof of work for all subsequently blocks in the chain, which can run to many thousands. This would not go unnoticed because of the time involved.
- Distributed peer to peer networks is synchronised. They all hold a copy of the chain and each user, sometimes called a node, has to verify the block and then add it to the chain. To compromise the integrity of the blockchain would require that all nodes consent to do exactly the same actions at the same time, which is quite impossible as they are all acting independently and transparently.
The future of blockchain
The wide application of blockchain technology is not going to be limited to digital currency in the finance industry. It has a strong future in a many different business sectors ranging from smart contracts in supply chain management to digital advertising and the Internet of things.
Some governments have really embraced blockchain technology. Estonia, for example, has been testing the benefits of blockchain for over a decade and it is now a key feature of Estonian data registries for legislative, healthcare, and banking purposes. Despite blockchain technology being capable of yielding tremendous benefits, not all global nations are at the same point with regard to adopting it. There are countries that have been more accepting of the technological change this particular technology can provide, while others are lagging behind.
It should be highlighted that, while global nations are generally open to the decentralized database technology, their stances may differ on cryptocurrency use regulation. National regulators are working on the means of handling the technology and drafting suitable regulations so as to not obstruct its progress, and to cultivate the social impact of blockchain technology.
How could blockchain technology be applied in Strategic Business Leader (SBL)?
An SBL examination might require a candidate to analyse a situation where an organisation of some kind may have had its information systems or databases infiltrated or hacked, or there may be a situation where customers or clients complain that their records are not visible to them and the company may experience reputational damage for not being sufficiently transparent with its stakeholders. All or part of the solution might be to recommend the implementation of blockchain with justifications.
For example, if blockchain technology were to be applied to medical records, the benefits of doing so would be that past records could never be altered by anyone and be completely inaccessible to anyone other than the person with whom the record is associated, such as the individual patient and/or their own doctor. Although patients would be allowed to independently access their own past and current records, for transparency reasons, they could never change or alter any record of their own or access anyone else’s medical record or change them in any way. Only the medical practitioners with the authority to, could access and create new records for their own patients and would be able to add to, but not make any changes to the existing records.
Written by a member of the Strategic Business Leader examining team