What’s the definition of blockchain? It depends on who you ask. We asked around and got some differing answers:
“Blockchain is a method of validating transactions based on transactions that have come before in the chain.”
“A peer to peer technology, to decentralize financial exchange, in its infancy and with as many supporters saying it will help lower developed countries getting banked and getting big banks to unedge.”
“Blockchain is a new type technology that handles the entire trust factor in a transaction between the ‘buyer’ and ‘seller’ by using an open, but encrypted list of all such transactions.”
“A secure transaction technology that’s most commonly associated with Bitcoin and cryptocurrency.”
“Blockchain is a new set of technologies that allows transactions of many kinds in many industries to be more secure and decentralized.”
There’s truth to all of these answers, but that last definition is of particular importance for businesses: blockchain is not limited to cryptocurrency and its applications will impact various industries in the near future.
Blockchain is disrupting the way we transact, period. Like the internet during its infancy, blockchain is hard to understand and predict, but it could become the new standard in the exchange of digital and physical goods, interactions with the government, and verification of the authenticity of everything from property titles to organic produce. It combines the openness of the internet with the security of cryptography to give everyone a quick, more secure way to verify key information and establish trust. For all we know, the internet is getting reinvented through this technology, but not enough businesses are paying attention.
Still confused? You’re not alone. Keep reading and I’ll demystify blockchain for you.
What is blockchain?
There is a lot of confusion surrounding the definition of blockchain, likely stemming from the newness of the technology, all the noise going out on media outlets, and its association with the digital currency Bitcoin (blockchain technology was developed as part of Bitcoin, but the two are not the same). The fact is that the term blockchain describes an entirely new stack of technologies. How you leverage these technologies depends on the utility and objective of the product you envision, and blockchain is already being used for peer-to-peer payment services, supply chain tracking, and more.
Defined simply, blockchain is a digital, secured, distributed, and decentralized ledger of transactions. Simple right? It allows a network of untrusted parties to exchange commercial transactions by verifying and agreeing at regular intervals on the true state of a distributed ledger. Such ledgers can contain different types of shared data, such as transaction records, attributes of transactions, credentials, or other pieces of information. Through a clever mix of cryptography and game theory, the ledger is secured and does not require trusted nodes or centralized institutions like traditional networks do. This is what allows Bitcoin to transfer value across the globe without the need of traditional intermediaries such as banks, but it can also have applications in healthcare, government, content distribution, supply chain, and more.
I mentioned that blockchain is digital, secured, distributed, and decentralized, but what does that actually mean? I’m going to take you into the weeds a little bit to explain, but I promise I won’t get you lost.
At its core, a blockchain is nothing more than a digital record of transactions, very much like a traditional ledger. These transactions are recorded chronologically and can represent any movement of currency, goods, or secure data, such as a purchase at a grocery store or the issuance of a government credential. One transaction after the other forms an immutable sequence (a.k.a chain) that can be more or less private or anonymous depending on how the technology is implemented.
By design, the information stored in the blockchain ledger is immutable, meaning that it is virtually impossible to add, remove, or modify data without being detected by other users (a.k.a nodes). It leverages heavy-duty asymmetric encryption, a type of cryptography in which the key that is used to encrypt the data is different from the key that is used to decrypt the data. In other words, it uses public and private keys in order to encrypt and decrypt data, respectively.
The blockchain ledger is distributed across a network of users (a.k.a nodes), which means that copies exist and are simultaneously updated with every node in the ecosystem. Any changes made to the ledger are immediately propagated to all users in the blockchain network to be verified and create a secure, established record. The integrity of the ledger is guaranteed by the distributed nature of the system which furnishes copies to all users (nodes) in the network. In turn, the overall database remains safe even if some users are hacked.
Traditionally, transactions taking place in the digital realm are verified by a central authority, like a credit card clearinghouse or the government. These are black boxes that we trust blindly to process and protect our personal data without a clear understanding of what/who is behind them and how they’re keeping the information safe. Blockchain, on the other hand, could replace these centralized systems with decentralized ones, where verification is based on the consensus of multiple users in the network. In addition, blockchain code is generally open source and can be reviewed by anyone, eliminating the blind trust factor and making for a more transparent system.
All the hype around blockchain is reaching a mad rush. While the long-term impact of the technology may be immensely powerful, the path to adoption is likely to be solidified around niche experimentation and tons of fairly compelling progressive developments. As transformative technology goes, mastery will have to be earned, experience will be well compensated, leaders will emerge, and projects will get more and more ambitious over time.
It’s still early in the game and lots of opportunities are waiting to be discovered. While it is fair to say that the technology is still immature, unproven, and largely unregulated, we may be witnessing the next internet boom. Companies would be wise to monitor developments in blockchain technology and consider applying it to their own projects or applications.
Where do you start?
A pragmatic approach to blockchain requires comprehensive knowledge of the business opportunity, the shortcomings of the technology, a trust architecture, and the right skills to execute. Before you start a blockchain project, make sure your team has the cryptographic background to asses what is and isn’t possible. Identify the existing systems and infrastructures you will need to integrate and keep up-to-date with the evolution and growth of those platforms. Be very careful when interacting with third-party vendors, and make sure everyone is on the same page with how the term “blockchain” is used throughout the process. As you saw earlier in this post, different people will have different definitions of blockchain, so it’s important to define what blockchain means to your company and set clear goals.
We can help!
If you or your company want to embark in a blockchain project, Tyrannosaurus Tech is here to help. Our team can help you plan and execute sophisticated blockchain strategies and bring cutting edge innovation to your organization, while making the process un-intimidating and fun—as it should be!