It seems the blockchain revolution is in full swing. Over the course of a one-year period, Google search requests for the keyword “blockchain” have increased by 250%. The U.S. Senate recently had a public discussion about the blockchain’s most prominent application, cryptocurrency. And several public entities have added “blockchain” to their company name. So what’s all the hype about? What is blockchain and how will businesses benefit from it?
What is a blockchain?
In simple terms, a blockchain can be described as an append-only transaction ledger. What that means is that the ledger can be written onto with new information, but the previous information, stored in blocks, cannot be edited, adjusted or changed. This is accomplished by using cryptography to link the contents of the newly added block with each block before it, such that any change to the contents of a previous block in the chain would invalidate the data in all blocks after it.
Blockchains are consensus-driven. A large number of computers are connected to the network, and to reduce the ability for an attacker to maliciously add transactions on the network, those adding to the blockchain must compete to solve a mathematical proof. The results are shared with all other computers on the network. The computers, or nodes, connected to this network must agree on the solution, hence the term “consensus.”
This also makes the work of appending data to the ledger decentralized. That is, no single entity can take control of the information on the blockchain. Therefore, we need not trust a single entity since we rely on agreement by many entities instead. The beauty of this construct is that the transactions recorded in the chain can be publicly published and verified, such that anyone can view the contents of the blockchain and verify that events that were recorded into it actually took place.
So to summarize, blockchains are:
• Transaction ledgers
• Trustless (it’s not based on a system of trust)
• Secured by cryptography
• Can be made public
What businesses benefit?
Prior to the advent of the blockchain, there was no way to secure and validate ownership in a digital asset or verify a transaction in a trustless, public manner. Take, for example, the act of utilizing a software license to gain access to a program like Microsoft Word. To enforce the right to use the software, it must check a centralized server operated by Microsoft. If Microsoft wanted, it could deny access to the software or transfer those permissions to another user. While we consider Microsoft a trusted entity, the risk of illicit behavior increases when an untrusted party is introduced.
Perhaps a better example is ownership of a more valuable asset, such as a substantial share in a company or valuable digital asset such as a one-off piece of digital artwork. To transfer shares of ownership in a company, the current model requires stacks of paperwork, a lawyer or a centralized and trusted entity, such as the New York Stock Exchange.
What about transferring a digital asset like art? How do you prevent people from copying the digital file and sending many others a copy? If there’s no way to publicly verify the transfer of a single asset to a single entity, then there’s no way to enforce ownership or authenticity. This is why the value in art is always in the physical good.
The blockchain is the first technology that enables the transfer of digital ownership in a decentralized and trustless manner. In fact, there are companies like Polymath that are disrupting the industry by creating digital tokens that can represent ownership in a company, or DAEX, which is seeking to disrupt the world of digital art by publishing ownership on the blockchain.
While technology and supporting platforms around the blockchain ecosystem are sure to evolve, to answer the question of which businesses will initially benefit from its use, are the ones which possess the following traits:
• Benefits from public scrutiny
• Benefits from history that can’t be rewritten
• Decentralization benefits the end user or customer
Revolutionary But Limited
It’s easy to get sucked into the hype of one of the fastest-growing new technologies. But it is important to understand that blockchain has its practical limits. It may not be a suitable replacement for where centralization is needed (or at least where there is no added benefit to decentralization) or where transaction malleability is needed.
An example of where I think blockchain may complicate things but not add value to a problem is the case for medical records. Since information privacy is protected by federal regulation, having them accessible to the public may not necessarily be a good thing. The only way to make something like this work would be to encrypt the information, then store the decryption keys on centralized entities to allow other nodes the ability to read the encrypted data. But this would require a few specific parties to be able to read and write the encrypted data. And therefore, a central authority would need to control the licensing of this information to make sure that bad actors do not have the ability to hijack one’s medical records. Also, erroneous information that is added to the chain may be impossible to change.
No doubt, the supporting tech around blockchain will quickly evolve, as will the potential for applications that rely on it. With its growth will come an increase in consumer awareness to its benefits, as well as an equally supportive community. Businesses that believe they might be able to add value by incorporating this technology into their product or service can tap into a growing community of blockchain engineers, be it in a freelance setting or a professional blockchain development agency. As with any nascent industry, talent will initially be scarce, but as the ecosystem develops, the supply should hopefully increase to support it.