What is Blockchain?

And why is it relevant for your organisation?

Going by the Google search statistics, the media coverage and the general buzz, one can’t be blamed for thinking that Blockchain is a magic technology that will solve all your organisational problems. Yet it is hard to find people who truly understand the technology and how it will apply to their organisation. This column will provide a high-level explanation of what Blockchain is, without too much of the jargon. It will also explain why Blockchain is relevant to your organisation, even if you have no plans to implement a Blockchain solution at this stage.

Richard Boeve - Blockchain Tester

Blockchain explained

Let’s start first with what Blockchain is not. It is not a technology that you can just buy from a software house, install and have a graphical user interface to work with it. Instead it is better to see it as a technology that is like a database and infrastructure at the same time. It works in a deeper layer, underneath your front-facing applications.

Seeing as most organisations already have databases and infrastructure set up and working quite well, what is it that Blockchain adds? First of all, Blockchain is decentralised. This means the database, called a ‘ledger’ in Blockchain terms, doesn’t live in the server room - instead data is stored across many computers. Each of them has a copy of all of the data. This data, once submitted to the Blockchain, is validated by many parties and once a consensus is reached that the data is correct, it will be permanently stored and become immutable. This data cannot be corrupted or lost, the data is transparent.

Blockchain got its name from the fact that its records are stored in blocks. At regular intervals a new block will be added to this chain of blocks. This happens after consensus is reached that the data in this block is correct. The blocks are linked by cryptography. If you imagine a vertical pile of blocks,  then each block that sits on top of another block will have a unique cryptograhic link with the block that sits underneath it. This is very important, because this is what makes the blockchain immutable. If someone wanted to corrupt a block of records that is six blocks ‘deep’ in the chain, they will need to alter all the blocks that sit on top as well to keep the cryptographic link to subsequent blocks correct. This is virtually impossible as Blockchain is decentralised and the data is stored on so many different computers (nodes) that to make such a change, you effectively must have control of 51% of such nodes. 

There are many different Blockchains, with differences in application, but also in how they work technically. The principles in the above paragraphs generally apply to most Blockchains available. The two best known technologies that use Blockchain are Bitcoin and Ethereum. Bitcoin is a digital curreny and Ethereum provides smart contract functionality.

Blockchain’s potential

Blockchain has the potential to shift a paradigm. The Industrial Revolution in the 18th century shifted a paradigm by making work easier and cheaper. The invention of the Internet eventually created a paradigm shift as well, which made the world smaller. So what is the paradigm shift that Blockchain brings? It’s ‘trust’.  Blockchain technology will create trust due to it being decentralised (no one owns it), immutable and incorruptible (data is correct and can’t be tampered with) and transparency (the data is visible).

Currently we often use third parties to validate transactions and provide trust. An example would be  the payment of an invoice. Instead of paying a supplier directly, the amount of the invoice will be transfered using a bank. The bank provides the ‘trust’ in this scenario and is the middle man, the independent third party. They will be able to validate that you have the funds to pay the invoice, then transfer it to supplier and provide proof that the invoice has been paid.

Blockchain can provide the trust needed to be able to transact without the independent third party having to validate your transaction. For the above example, you could do away with the bank when paying the invoice with a digital currency that is built on the Blockchain. The Blockchain can provide immutable and transparent proof that the invoice has been paid. Benefits are extremely fast transaction speeds and low cost. A transfer of funds to the other side of the world can be done in seconds, instead of days, and will cost cents as opposed to a hefty bank fee.

Another example of an application of Blockchain is ‘smart contracts’. A smart contract is a set of conditions that are written to a Blockchain and these conditions can be fulfilled without direct human interaction, which then will result in another action or condition. A good example of an application of this is a mail order. When ordering a book, a smart contract can be created between you and the supplier. The cost of the book and the shipping is paid for to the smart contract and won’t be released to the supplier until a later condition is met. This could be the courier delivering the item and scanning it at your door. The scanning of the parcel is the action that will fulfill the final condition of the smart contract and release the funds to the supplier.

Richard Boeve - Blockchain Strategy

Blockchain’s relevancy to you

When the internet first started to become mainstream, little did we know the impact it would have on our lives 25 years later. A lot of people knew it could be big, but not many could predict the global success of the likes of Amazon, Facebook, Uber and AirBnB. The same potential applies to Blockchain, there is so much potential that can be built upon this technology. Chances are that you believe that Blockchain is of little relevancy to your organisation, or it is just something you haven’t consciously thought about yet. It is, however, likely that it will impact your organisation directly or indirectly in the future.

Efficiency and cost savings are major drivers for organisations and since Blockchain can provide these results, more and more organisations will look at how to benefit from this technology. The above ‘mail order’ example shows how Blockchain might affect you indirectly. The courier company might have not thought about Blockchain and what benefits it could provide to them, yet they were contacted by the distributor of the books, who wanted to have a trusted and transparent method of delivering books to their customers and cutting out the bank at the same time. They therefore insisted that the courier they will engage with going forward will need to adapt to Blockchain technology. This is not much different from when the internet was first used to provide track and trace on parcels - eventually all courier companies implemented this technology that at first was cutting edge but is now the norm.

Blockchain is still in its infancy. The applications seem limitless and the impact on society can be enormous. Keeping an open mind towards possible applications and thinking about how it might affect you and your organisation will help the transformation to a world where solving the trust paradigm is a revolution just as much as the invention of the internet or the industrial revolution.

Thinking about implementing a Blockchain project in your organisation?