Blockchain is a new technology which has the potential to change the way business is done, transactions are executed and even the whole financial system.
It is important to know about such an important technology. WE have tried to answer most important questions about Blockchain here, from prominent sources.
What is blockchain?
True blockchain has five elements: Distribution, encryption , immutability, tokenization and decentralization.
Distribution Blockchain participants are located physically apart from each other and are connected on a network. Each participant operating a full node maintains a complete copy of a ledger that updates with new transactions as they occur.
Encryption Blockchain uses technologies such as public and private keys to record the data in the blocks securely and semi-anonymously (participants have pseudonyms). The participants can control their identity and other personal information and share only what they need to in a transaction.
Immutability Completed transactions are cryptographically signed, time-stamped and sequentially added to the ledger. Records cannot be corrupted or otherwise changed unless the participants agree on the need to do so.
Tokenization Transactions and other interactions in a blockchain involve the secure exchange of value. The value comes in the form of tokens, but can represent anything from financial assets to data to physical assets. Tokens also allow participants to control their personal data, a fundamental driver of blockchain's business case.
Decentralization Both network information and the rules for how the network operates are maintained by nodes on the distributed network due to a consensus mechanism. In practice, decentralization means that no single entity controls all the computers or the information or dictates the rules.
Understanding each of the elements, and how they come together to form a true blockchain, gives CIOs a framework to explain the technology to executives and clear up misconceptions. CIOs can also use the elements to explain the difference between partial blockchain-inspired solutions and complete- and enhanced-blockchain solutions.
How Does a Blockchain Work?
Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.
Information held on a blockchain exists as a shared and continually reconciled database. This is a way of using the network that has obvious benefits. The blockchain database isn't stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
To go in deeper with the Google spreadsheet analogy, I would like you to read this piece from a blockchain specialist.
The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes because you are locked out of editing it until the other person is done with it. That's how databases work today. Two owners can't be messing with the same record at once. That's how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again). With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people.
Imagine the number of legal documents that should be used that way. Instead of passing them to each other, losing track of versions, and not being in sync with the other version, why can't *all* business documents become shared instead of transferred back and forth? So many types of legal contracts would be ideal for that kind of workflow. You don't need a blockchain to share documents, but the shared documents analogy is a powerful one. William Mougayar, Venture advisor, 4x entrepreneur, marketer, strategist, and blockchain specialist The reason why the blockchain has gained so much admiration is that:
It is not owned by a single entity, hence it is decentralized
The data is cryptographically stored inside
The blockchain is immutable, so no one can tamper with the data that is inside the blockchain
The blockchain is transparent so one can track the data if they want to
How is blockchain related to bitcoin?
Bitcoin, with a market cap of more than $40 billion, is the largest implementation of blockchain technology to date. While a lot of media attention has shifted from bitcoin to blockchain, the two are intertwined.
When The Economist put blockchain on the cover in 2015, it wasn't really about its use to support a digital currency anymore. It was all about the other applications this technology will unleash within the next 5 to 10 years, Catalini says. For example, in finance and accounting there is excitement about the ability to settle and reconcile global transactions at a lower cost using the technology. In logistics the attention is all on how you can use the immutable audit trail generated by a blockchain to improve the tracking of goods through the economy. Others are fascinated by the possibility to use this as a better identity and authentication system.
What different types of blockchain are there?
There are three main types of blockchain: public, private, and consortium.
Public blockchain is completely decentralized, with no single authority on the network. All transactions on the chain are visible by any node on the network.
Private blockchain is the property of an individual, and nodes require permission to access the network.
Consortium blockchain is a private blockchain with distributed authority acting in the best interests of the network.
Are Businesses Ready for Blockchain?
For businesses, blockchain could be a radical departure from manual processes. And new costs and risks come with any new technology. Companies might be reluctant to make that leap.
Companies begin piloting uses of blockchain technology.
Global companies start adopting blockchain.
Early adopters begin to benefit.
Majority of corporations have blockchain projects in production.
How blockchains could change the world
What impact could the technology behind Bitcoin have? According to Tapscott Group CEO Don Tapscott, blockchains, the technology underpinning the cryptocurrency, could revolutionize the world economy. In an interview with McKinsey's Rik Kirkland, Tapscott explains how blockchains an open-source distributed database using state-of-the-art cryptography may facilitate collaboration and tracking of all kinds of transactions and interactions. Tapscott, coauthor of the new book Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World, also believes the technology could offer genuine privacy protection and a platform for truth and trust. An edited and extended transcript of Tapscott's comments follows.
Why do I need to know about Blockchain?
There are three reasons why you need to know about Blockchain:
Blockchain technology doesn't have to exist publicly . It can also exist privately - where nodes are simply points in a private network and the Blockchain acts similarly to a distributed ledger. Financial institutions specifically are under tremendous pressure to demonstrate regulatory compliance and many are now moving ahead with Blockchain implementations. Secure solutions like Blockchain can be a crucial building block to reduce compliance costs.
Block-chain technology is broader than finance . It can be applied to any multi-step transaction where traceability and visibility is required.
Supply chain is a notable use case where Blockchain can be leveraged to manage and sign contracts and audit product provenance. It could also be leveraged for votation platforms, titles and deed management - amongst myriad other uses. As the digital and physical worlds converge, the practical applications of Blockchain will only grow.
The exponential and disruptive growth of Blockchain will come from the convergence of public and private Blockchains to an ecosystem where firms, customers and suppliers can collaborate in a secure, auditable and virtual way.
We hope that helps in your Blockchain conversations - happy mining!