What is Blockchain? Learn the Truth Behind the Hype
There’s a lot of talk around blockchain. Some are suggesting it’s the biggest thing since the internet itself, or sliced-bread. While it has been around since 2008, until recently it was mainly just a part of the discussion around Bitcoin. While Bitcoin uses the blockchain model, the two are not synonymous and the future of blockchain will not depend on the success (or failure) of Bitcoin.
So, what is blockchain? Perhaps you’ve heard the descriptions of it being a distributed ledger, or a distributed database, but does that really help? Let’s split it up into its parts, block and chain.
A block is simply a collection of data. However, there are attributes of the block that enable powerful features:
- It is time-stamped
Each block has a record of the exact time of creation
- It is decentralized
Each block is recorded in multiple places
- It is open
There’s no central authority, or one point of failure, but rather it works by consensus over multiple computers
- It is secure by design
Adding these elements together, make it extremely difficult to hack or modify. Once created, a block is, in effect, written in stone.
The chain is about connecting each block together. As each block is timestamped, it has a set position and becomes part of the continuously growing list of blocks; each block refers to the one before, building up the chain.
The Potential of Blockchain
Why all the hype? Due to its nature, a blockchain is an excellent way to record transactions. One factor is its permanent nature; once written to the chain, it is unalterable, thereby offering a defendable record. The other alluring factor is the fact that it’s verifiable; it’s not hidden in a safe somewhere, or under somebody’s control, it’s in the public record.
The control factor is also of interest to many, who look at it as a way to bypass traditional gatekeepers. A blockchain is a type of computer program that automatically performs the functions of that particular blockchain. It can run autonomously. It can trigger transactions automatically, based on preprogrammed conditions, making way for smart contracts. It can manage complex, cooperative networks without intervention. Many suggest that it’ll replace lawyers, accountants, banks and other intermediaries.
Blockchain could be the ultimate disruptor; according to Marissa Levin, Founder and CEO of Successful Culture, “Overall, this technology is empowering people worldwide to push costly intermediaries to the side by giving them the ability to both authenticate and perform direct, immediate transactions with others.”
Blockchain Status — April 2017
Note, the future of blockchain is highly speculative at this point. While the technology has lots of promise, it is still early and there are no reports of any lawyers or accountants losing their job to the blockchain.
Over one billion of VC investments has flowed into blockchain innovation. Major players are entering the sector, such as IBM with Hyperledger and Intel, Microsoft, J.P. Morgan and Accenture working on Ethereum (another crypto-currency like Bitcoin).
There are experimental or commercial projects underway to use blockchain as varied as energy, healthcare, music, luxury products, land registries, ticketing, Internet of things, and coffee supply-chain. Of course, with its ability to track transactions, numerous financial service sectors and jurisdictions are investigating opportunities around insurance, fund distribution, notice-of-lien filings, share issuances, proxy voting, trade issuances, fund transfer, and trade finance. Just to give you an idea how hot Blockchain is, the items in the list are from one recent week of news.
As with most technologies, perhaps the hype is getting ahead of the reality. As Bill Gates says, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten .”
Adoption of blockchain technology in certain controlled environments — private blockchains — can happen quite quickly. For cost savings, efficiency, and transparency reasons, private blockchains provide benefits that outweigh the risk. As they are private, it’s up to the parties themselves to determine and enforce the rules.
For public blockchains, the bar is much higher. As recent blockchain rulings by the SEC and the ECB point out, they don’t have the necessary protections or regulations in place yet.
While great in theory, there’s thorny reality to consider. Who actually controls the blockchain?
Blockchain fabulists may claim that smart contract applications like The DAO’s will displace lawyers and disrupt the legal industry. But as this incident amply demonstrated, the reality is that smart contracts have proven to be neither smart nor, for that matter, enforceable agreements. The blockchain is truly an innovative approach to governance for networks and machines. But we must resist the temptation to anthropomorphize code and misapply machine governance to social systems. Code is law for machines, law is code for people.
Patrick Murck, a fellow at Harvard University
In theory, blockchain is some immutable force, that is above politics/people/law – pure code . Of course, code is a human-creation, with biases, interpretations and errors of the builders built-in. Over time, as the code is debated, tested and adjusted it should become more resilient, less buggy and more able to live up to its promise.