An Introduction to Blockchain Technology
Blockchain started out as a ledger for bitcoin transactions, but now it's finding use in numerous other applications.
Blockchain continues to bedevil the global business community, with many organizations still unable to figure out if it is a revolutionary development in data management or an overhyped chimera liable to do more harm than good.
What is certain, though: blockchain is continuing to advance and it's here to stay.
The basic concept of blockchain is fairly easy to grasp. Investopedia’s Luke Conway recently posted a thorough review of the state of the technology, noting upfront that it is essentially a means of data storage that organizes data into blocks that are then linked into a chain.
As new data is received, it is entered into a new block rather than rewritten over the old. In this way, blockchain provides a permanent, immutable ledger of past events that can be viewed in chronological order.
Most applications use blockchain for storing financial records, but it can be used for other purposes such as supply chains, travel records and legal documentation. Iron Mountain reports more than 40 top financial institutions and a growing number of companies across industries are experimenting with distributed ledger technology. (Read also: Why Data Scientists Are Falling in Love with Blockchain Tech.)
How is Blockchain Secure?
One key question that many who are new to the technology ask is, what’s to stop someone from hacking into the chain to alter previous blocks? While most digital ledgers are centralized on a single, hardened server, blockchain is decentralized across many, even thousands, of servers.
While at first blush this may seem like a security manager’s nightmare, it is in fact rather ingenious. Before a new block can be added to a chain, each server will compare its records to those of the other servers. If anything does not match, the chain is put on hold and the transaction is canceled pending further examination. So in order to illegally alter a block, a hacker would have to break into thousands of servers and make the change simultaneously – not impossible, but extremely difficult. (Read also: Can the Blockchain Be Hacked?)
The advantages of blockchain are well-known at this point. Without a central authority holding dominion over the ledger, users are able to apply it across a wide range of applications.
The BBC’s Chris Baraniuk poses a scenario in which a customer wishes to make a purchase but the bank’s network is down. If the bank is using its own private ledger, that customer is out of luck. If it uses blockchain, the customer could use a credit card or store credit or any other mechanism that can access the user’s blockchain. This is part of the reason blockchain became a favorite of digital currencies like bitcoin: no central control means no one can subvert the exchange of bitcoins to their own ends.
If this is the case, however, then why hasn’t blockchain, which was introduced commercially more than 10 years ago, garnered a larger share of the digital ledger market? Beyond the cryptocurrencies, most organizations are still leery of blockchain, limiting it to a handful of pilot projects but not welcoming it into core business applications.
Hesitation for full-scale adoption may have to do with existing Trust, Governance, Risk and Compliance legislation. According to Joseph Holbrooke, author of Architecting Enterprise Blockchain Solutions: “A blockchain architect will likely run into several concerns around the General Data Protection Regulation, the Health Insurance Portability and Accountability Act of 1996, the Sarbanes‐Oxley Act of 2002, Know Your Customer, anti‐money‐laundering rules and so on.”
According to The New York Times’ Nathaniel Popper, the biggest strike against blockchain is that centralized ledgers are more efficient when it comes to creating reliable software to repair bugs and launch new services. Complain as we might over the development cycles of proprietary software, at least there is someone to call when things go wrong. With blockchain, no one is in charge, and it is very difficult for users to implement their own fixes across legions of decentralized servers that are hardened against intrusion.
Central authorities are efficient at building reliable software and fixing it when things break. With a decentralized network of computers and programmers, there’s no boss to say that this flaw must be fixed in 20 minutes.
Is Blockchain Beyond the Law?
This sort of democratization is also proving troublesome when it comes to policing. Terrorists, warlords and other wrongdoers can be effectively shut out of a centralized, regulated community, but it’s not so easy with the leaderless blockchain. To this day, services using Tor software and the myriad iterations of black market exchanges that sprang up following the 2014 take-down of the Silk Road darknet continue to utilize blockchain for a wide range of licit and illicit purposes.
Another important aspect of blockchain that is often overlooked is that not all blockchains are alike. Wesley Crook, CEO of cloud developer FP Complete, noted in Forbes recently that blockchain software packages come in a wide variety of designs and approaches to implementation.
Perhaps the most important element is cryptography, which should ideally incorporate the most trusted irreversible hash algorithms and public-key signing and verification tools. (Read also: Who Owns the Data in a Blockchain Application - and Why It Matters.)
As well, experience has shown that most blockchain breaches to date were the result of bugs introduced due to faulty implementation, as well as attacks on the network layer, social engineering vulnerabilities and memory safety errors.
What's Next for Blockchain Technology?
At the moment, then, there doesn’t appear to be a clear consensus as to where blockchain goes from here. To some it is the future, to others it is already an artifact of the past. It may be that the reason it is so difficult to gauge blockchain’s fortune may be the fact the world economy itself is in such flux.
Whether it’s on Wall Street, main street or in the corporate world, power seems to be decentralizing everywhere as legions of connected users band together to write their own rules about work and financial success.
Perhaps the problem is in trying to force-fit blockchain into a role defined by the centralized economy where government and industry largely make the rules when in reality it is a technology more suited to the emerging digital economy where, at the moment at least, individuals have greater leverage as to where, when and how they manage their affairs.