The five things you need to know about Blockchain

Even though Satoshi Nakamoto (whoever that may really be) wrote the white paper on peer to peer transactions and interactions way back in 2008, 11 years on the underlying concept of blockchain and distributed ledger technology that it introduced is only now in the throes of going mainstream in the enterprise. Is this a technology you should care about and include in your plans? Here are the five things you need to know to answer that question.

1 – The hype around cryptocurrencies is getting in the way

Blockchain technology suffers from being associated with the hype around Bitcoin, other cryptocurrencies, and ICOs, as well as the “gold rush” mentality that seemed to prevail when it first came to the market.  When a company can manage to increase its valuation simply by adding blockchain in to their name, something’s wrong. The noise around those early projects and use cases obscures the real value that the technology can provide the enterprise. Ignore the hype and take a serious look.

2 – It adds something different and new to database technology

What makes blockchain different to any other database? Traditional databases are based on CRUD. No, not rubbish, but the concept that somebody has the ability to write a program that creates, reads, updates or deletes individual records in a database sitting on storage connected to a central server somewhere. Some one person has control of the administration rights for that database. Depending on the particular database technology and the way the software accessing it is designed, any changes might be tracked showing who made the change, date and time stamped, and then duplicated somewhere else for backup and recovery purposes. You can use all sorts of security measures and cryptography to protect the integrity of the data, but two things remain true.  First, that one person or central authority has administration rights to keep the data secure and control access on everyone’s behalf. Second, the individual records in the database can be changed. If a malicious agent wants to beat the cybersecurity measures put in place so that they can’t hack into the data, they have one place to work and do their dirty work.

Blockchain databases consist of several, distributed compute server and storage nodes, all of which participate in the administration and verification of the data all of the time – a peer to peer network with no centralised control. Instead of CRUD, blockchain technology can only create and read. Somebody writing the program to use this kind of database can only read existing blocks and add or append additional blocks. The blockchain technology performs only two functions – the cryptographically encrypted validation of existing transactions and the addition of new ones. Each node in the network has been given permission to join with the same administration rights as every other node. Every node in the network has the rights and capability to add new blocks. All of the nodes of the network verify and replicate every existing and new block. That means that the malicious agent who wants to beat the cryptographic encryption to hack the data needs to do that simultaneously on all the nodes of the network, making it so difficult and expensive in compute power (with current technology) as to be impossible in practice. That’s why this form of distributed ledger technology can be considered immutable. That’s why you can trust a blockchain ledger.

So that’s the difference, but it’s important to note that within a particular application, blockchain technology will always be used to add its trust mechanism alongside traditional database technology to provide a working system.

3 – It has the power to change everything

All trade and commerce is founded on trust, and trust is the problem that blockchain solves. For thousands of years business has grown up with some sort of trusted intermediary overseeing or involved in the value exchange, be it a marketplace, bank, lawyer, accountant, or regulator (or often all of them). We’ve been working this way for 10,000 years and we just accept that’s the way it is. Then in the 15th Century we added another dimension. Luca Pacioli, a friend of Leonardo da Vinci who was also a monk, a mathematician, and an alchemist formally codified the Italian double-entry accounting system known as the Method of the Merchants of Venice. It was the first system that allowed merchants to measure the worth of their business. Pacioli adapted Arabic mathematics to provide a system that could work across all trades and nations. So for hundreds of years every party in the value exchange has been keeping their own double entry bookkeeping systems to keep track. From the sole trader (and their accountant) to the small business to the large enterprise, everybody works this way.

Blockchain has the potential to change all trade. An immutable (trusted) distributed ledger approach can remove some or all of the need for those extra partners, take steps out of the business process, reduce the multiples of record keeping required. It can make the whole process faster and more efficient. Enterprises might like centralised control, but they have to live in markets and ecosystems with other parties, working to a set of rules. With blockchain technology you can automate and legislate for that, with everyone working to the same version of the truth.

Yesterday’s business bought, managed and ran business systems on in-house software, servers and networks. Today’s business runs business systems provided to them “as a Service” with on demand “pay as you go” resources. Tomorrow’s business will run less of their own systems, reduce the amount of duplicated bookkeeping they do, and instead plug in to marketplaces and ecosystems and public data services, and rely on the trusted data they will provide.

It won’t just be trade and finance that blockchain changes. The technology is relevant to all sectors from health to real estate, from manufacturing to professional services and government systems too.

4 – We are just in the foothills

Even though the technology is 11 years old, we are still in the foothills and there is a mountain we haven’t discovered yet. I’d suggest that blockchain is at about the same stage of development as the Internet in the mid 90s.  We’ve got the protocols sorted out and we’ve just survived the browser wars. Companies are beginning to build websites and Yahoo! has just started. We are about to see lots of search engine companies like Alta Vista and the like vying for our attention. We are years away from Google coming along. Nobody has conceived of anything like blogging and the rise of social media. Facebook hasn’t been imagined. The concept of Twitter is over a decade away. That’s where I believe we are with Blockchain. Major ideas and major companies using the foundations we are laying now will come along in the next 10 years, change things dramatically and create a lot of wealth.

5 – You can’t ignore it

The bottom line is that this technology is a game changer. I concur with IBM’s President and CEO Ginni Rometty who says:

We believe blockchain will be one of the things that can actually transform how work is done everywhere.”

If you haven’t started yet, we strongly recommend that you factor it in to your plans.

For advice with your blockchain strategy, with evaluating blockchain platform suppliers, or just more information, then please get in touch.