What you need to know
Blockchain is a digital ledger that provides a secure and public way of making and recording transactions, agreements and contracts; its best-known use is Bitcoin, a virtual currency. The database is shared across a network of computers and becomes a long list of chronological transactions that have taken place since the beginning of the network.
Blockchain is a transformational technology. For all its complexity, blockchain’s potential as a decentralised form of record-keeping is almost without limit. From greater user privacy and heightened security, to lower processing fees and fewer errors, blockchain technology has the potential for a myriad of applications. A key area is technology for enterprises that require trust-less transactions and secure record keeping. Enterprises can track transactions with greater confidence and security, and blockchain adoption - completely distinct from crypto currency hype or doom projections - is steadily gaining in enterprise environments.
Digital technology is now dominant worldwide. The initial mainframe digital technology managed data in batches; now digital data is managed in real time over the internet. Blockchain brings digital technology into real time computing systems management. It has the ability to change every aspect of the digital economy, including conducting business, delivering healthcare, shopping, enhancing education and learning, entertainment, and staying connected with a social world. Blockchain digital technology has evolved further to aid in conducting financial transactions. Online payments have gained huge traction, while card-based payment methods, such as credit and debit cards, have become dominant. Blockchain supports all these changes by increasing the speed of transaction processing, ensuring greater efficiency in real time processing, and enhancing security.
Worldwide venture capital investment in blockchain almost quadrupled in 2018 to $3.9 billion as the number of deals expanded to 384. Investment in the UK rose to some £500 million. Global spending on blockchain solutions is expected to grow from $1.9 billion in 2018, but there are major differences in forecasts to 2022 - varying between $11.7 billion and $25.7 billion. Companies in nearly every industry are rushing to take advantage of the perceived benefits of the blockchain phenomenon and many are looking to adopt their own private versions of blockchain and crypto currency.
Blockchain might have the disruptive potential to be the basis of new operating models, but its initial impact will be to drive operational efficiencies. Cost can be taken out of existing processes by removing intermediaries or the administrative effort of record keeping and transaction reconciliation. This can shift the flow of value by capturing lost revenues and creating new revenues for blockchain-service providers.
Covered in this Report
Blockchain is a distributed ledger technology (DLT) that is also a transformational technology. It has the potential to extend the digital economy outside the enterprise, and is transformational because it allows the enterprise to reach beyond a company’s walls to do business in concert with partners. Blockchain permits the enterprise data centre to reach into the processes it shares with suppliers, customers and partners.
At its most basic level, blockchain is literally just a chain of blocks. “Blocks” on the blockchain are made up of digital pieces of information. Specifically, they have three parts.
Blocks store information about transactions, such as the date, time and currency amount.
Blocks store information about who is participating in transactions. Instead of using an actual name, the purchase is recorded without any identifying information using a unique “digital signature,” somewhat like a username.
Blocks store information that distinguishes them from other blocks. Each block stores a unique code called a “hash” which distinguishes it from every other block.
A single block on the blockchain can actually store up to 1 MB of data. Depending on the size of the transactions, that means a single block can house a few thousand transactions under one roof.
When a block stores new data it is added to the blockchain. A blockchain, as its name suggests, consists of multiple blocks strung together. In order for a block to be added to the blockchain, however, four things must happen.
A transaction must occur.
The transaction must be verified. With blockchain, however, the verification task is left up to a network of computers. These networks often consist of thousands (or in the case of Bitcoin, some five million) of computers spread across the globe. These computers confirm the details of the purchase, including the transaction’s time, currency amount and participants.
The transaction must be stored in a block. After your transaction has been verified as accurate, it gets the green light. The transaction’s dollar amount, your digital signature and Amazon’s digital signature are all stored in a block. There, the transaction will likely join hundreds or thousands of others like it.
The block must be given a hash. Once all of a block’s transactions have been verified, it must be given a unique, identifying code called a hash. The block is also given the hash of the most recent block added to the blockchain. Once hashed, the block can be added to the blockchain.
When the new block is added to the blockchain, it becomes publicly available for anyone to view.
Anyone can view the contents of the blockchain, but users can also opt to connect their computers to the blockchain network. In doing so, their computer receives a copy of the blockchain which is updated automatically whenever a new block is added. Each computer in the blockchain network has its own copy of the blockchain, which means there are thousands - or in the case of Bitcoin millions - of copies of the same blockchain. Although each copy of the blockchain is identical, spreading that information across a network of computers makes the information more difficult to manipulate. With blockchain, there isn’t a single, definitive account of events that can be manipulated. Instead, a hacker would need to manipulate every copy of the blockchain on the network. Although transactions on blockchain are not completely anonymous, personal information about users is limited to their digital signature or username.
Blockchain technology accounts for the issues of security and trust in several ways. First, new blocks are always stored linearly and chronologically - that is, they are always added to the ‘end’ of the blockchain. After a block has been added to the end of the blockchain, it is very difficult to go back and alter the contents of the block. This is because each block contains its own hash, along with the hash of the block before it. Hash codes are created by a math function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well.
In order to change a single block, a hacker would need to change every single block after it on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power. In other words, once a block is added to the blockchain it becomes very difficult to edit and impossible to delete.
To address the issue of trust, blockchain networks have implemented tests for computers that want to join and add blocks to the chain. The tests, called ‘consensus models’, require users to ‘prove’ themselves before they can participate in a blockchain network. One of the most common examples employed by Bitcoin is called ‘proof of work’. In the proof of work system, computers must ‘prove’ they have done ‘work’ by solving a complex computational math problem. If a computer solves one of these problems, they become eligible to add a block to the blockchain. But the process of adding blocks to the blockchain - what the crypto currency world calls ‘mining’ - is not easy. According to the blockchain news site BlockExplorer, the odds of solving one of these problems on the Bitcoin network was about one in 5.8 trillion in February 2019. To solve complex math problems at those odds, computers must run programs that cost them significant amounts of power and energy.
Proof of work does not make attacks by hackers impossible, but it does make them somewhat useless. If a hacker wanted to coordinate an attack on the blockchain, they would need to solve complex computational math problems at one in 5.8 trillion odds just like everyone else. The cost of organising such an attack would almost certainly outweigh the benefits.
For all its complexity, blockchain’s potential as a decentralised form of record-keeping is almost without limit. From greater user privacy and heightened security to lower processing fees and fewer errors, blockchain technology has the potential for a myriad of applications.
