Blockchain has captured the imagination of many technologists and businesspeople alike. Its potential could be far-reaching, yet it is also unclear how exactly it will be implemented. Since the concept of blockchains is relatively new, many people still have questions. Truth be told, I had the same questions myself when I initially started to explore this technology. Today, I’m able to help others answer some of those questions while speaking on technology panels or consulting with clients. This Q&A was borne out of questions I often get.
What Exactly Is Blockchain?
At its core, blockchain is a framework for creating business-to-business workflows. From a technical perspective, it’s essentially a decentralized database. This database automatically synchronizes data among various systems in which each system receives a copy of the data. The advantage of this distributed model is that if one node fails, the remainder of the blockchain ecosystem still works. Blockchain can also provide transparency. It stores an immutable log of transactions that cannot be changed after the fact. The system is powered by cryptography and includes consensus mechanisms that minimize fraud.
What Could This New Technology Mean To Me?
Blockchain has the potential to create a single source of truth among organizations that typically exchange massive amounts of data (e.g., logistics information, invoices, etc.). It can integrate previously siloed organizations or enable simpler integration. For instance, it can be used in supply chains to track materials from suppliers in a seamless fashion. And blockchains have the potential to keep records of financial transactions that automatically enforce contracts among parties.
What Are Some Real-World Examples Of Blockchains?
Walmart recently announced a requirement for their suppliers to leverage blockchain. Anyone who remembers the 2006 E. coli outbreak in the United States may know that it took the industry some time to track the source of the bacteria found in spinach to a specific farm. The lack of spinach sales in the 26 states affected by the outbreak represented a loss of revenue and trust. With the use of blockchain, Walmart can now trace the source of food in seconds as opposed to a week.
What Are Some Other Examples Of Blockchain Use Cases?
Blockchain use cases are found in just about every industry. For instance:
- Kodak is using blockchain for digital rights.
- Intel’s Sawtooth project is tracking seafood in the supply chain.
- Everledger is tracking diamonds.
- Etherisc is providing automatic insurance payouts based on an event.
- Health care companies are exploring putting patient records on the blockchain.
- Fintech companies are working on international money transfers, escrow and raising capital.
Do I Need Cryptos For Blockchain?
Not at all. Cryptocurrencies and blockchains are related, but they are not the same thing. Cryptocurrencies like Bitcoin are a mechanism to store and exchange value. Some people consider cryptos to be a replacement of fiat currencies, while others view them as a store and exchange of value. Blockchain is what powers cryptocurrencies. For instance, Bitcoin’s underlining protocol is a blockchain. However, blockchains don’t have to be leveraged only with cryptocurrencies.
What Are Some Legal Challenges Blockchain Presents?
In the United States, the SEC typically treats cryptocurrencies as securities. If you create a blockchain solution that issues cryptos, you may need to evaluate the implications when it comes to SEC registrations. On the other hand, the IRS treats cryptocurrencies as property. If you trade cryptos, you will have to pay income tax on any appreciation of these assets. Lastly, if you’re creating a consortium blockchain (where competitors participate), make sure you are not creating an environment of collusion and price fixing.
What Are Some Of The Different Types Of Blockchains?
At a high level, there are public blockchains such as Bitcoin and Ethereum, as well as permissioned blockchains, including Hyperledger, Corda and many others. While anyone can participate on public blockchains, permissioned blockchains are intended for a limited number of parties typically found in enterprise settings.
What Are Some Pitfalls Of Blockchains?
First, this technology is very young and evolving very fast. As of 2018, Bitcoin, the original blockchain implementation, is only about 10 years old, while Hyperledger and Ethereum have been around for only three years. In my opinion, the current state of blockchains roughly compares to the state of the internet in around 1994. It’s a very promising technology, but in order to be universally useful, it will need to evolve.
How Do You Control A Blockchain Database, And Who Can See What?
Much of that depends on the type of blockchain that is being used. For instance, Ethereum is a public blockchain, which means that everyone on the network can see all of the transactions. For most enterprise use cases, this is probably not an appropriate implementation. Other frameworks such as Hyperledger Fabric are permissioned and allow a much more fine-grained level of authorization. For instance, Fabric creates a notion of channels. Each channel allows only certain organizations to access data within the channel. Channels also include notions of private data collections that enable only some organizations within a channel to commit and query private data.
It is my hope that this article shed at least some light on what blockchain is and how it could be implemented. As one can see, the technology has a potential to positively impact not only businesses but the world at large. However, we are still in the early phase of its adoption, so only time will tell what becomes of blockchain technology.