Blockchain is a key technology for creating distributed, immutable ledgers of information on the Internet (otherwise known as Distributed Ledger Technology, or DLT). It is the technology behind cryptocurrencies like Bitcoin and Ethereum, but can be used for much more than currency.
What is a blockchain?
Deploying information in a blockchain also allows multiple diverse systems to contribute to the same ledger without the need for an intermediary system or protocol.
Each chain starts with a “genesis block” (which has a zeroed hash and no pointer to a previous block). Each subsequent block has a hash of the previous block calculated from the contents of that previous block. This assures integrity of the chain of information. Tampering with a block invalidates it and all subsequent blocks in the chain. Blocks are highly encrypted (usually AES256).
Distributed and un-hackable information ledger
Blockchains are not stored on a centralized server system but are distributed across 1,000’s of machines. To hack one a hacker would need to:
- Tamper with a block
- Decrypt it
- Re-hash every subsequent block
- Re-encrypt the chain, and
- … do this on at least 51% of the nodes (machines) monitoring the blockchain before being detected.
For instance, in the Bitcoin blockchain there are currently around 10,000 nodes, so a hacker would need to hack into 5,000 diverse machines and perform the above changes in under 10 minutes (otherwise the “consensus algorithm” would detect the discrepancy and auto-correct it, and the tampering would be flagged).
This makes a properly deployed blockchain virtually un-hackable for all practical purposes, and there has been no known hacking of a properly deployed blockchain to date. The hacking you hear about related to crypto-currency is where exchanges or individual’s digital wallet passwords have been hacked due to inadequate security.
Blockchain technology is useful way beyond its use for cryptocurrencies as it forms an immutable, distributed ledger of information, which has a host of uses across multiple industries and institutions. Major banks, governments and industry are all considering how to use blockchain to its maximum effectiveness in their organizations and applications.
The technology can also be used to implement “smart contracts”. A smart contract is a set of self-executing and self-enforcing rules that can be embedded into a blockchain to make certain actions occur automatically when a set of “clauses” has been successfully completed (also called a decentralized application or ĐApp).
Smart contracts are useful for:
- Automatic payments when certain conditions have been met
- Automatic re-calculation of owed amounts based on missed deadlines etc.
- Reducing transaction costs associated with traditional contracts
An example industry segment where blockchain and smart contracts might be useful is in the construction, oil & gas and mining industries where significant gains might be realized in having:
- An immutable record of plans, orders, activity, equipment locations, personnel and hours spent
- Information coming from diverse sub-contractor systems in one place so that much more information on any given item can be extracted and acted upon
- Successful inspections automatically triggering payments to relevant contractors, drastically reducing payment delays all around and improving trust between parties
In summary, blockchain is a new technology that, through its distributed ledger technology and smart contracts, has the potential to disrupt huge numbers of industries and organizations across the world. The global Blockchain market by 2024 is expected to reach $20B, so the rise of blockchain-enabled solutions in the next 3 to 5 years is expected to happen at an extremely high rate. Every organization and online application provider should examine themselves to see where blockchain might help, or even be essential in the years to come, and act now to be ready.