The difference between a blockchain and a database — and why you should care now
Though similar in some ways, there are key differences between Blockchain and a traditional database. So, what makes blockchain different? Blockchains are decentralized, append-only, and, by inherent structure, trustworthy.
Let’s break that down:
- The concept of decentralization is at the very core of blockchain technology. Any data that is stored inside the blockchain is not owned by one centralized entity but shared by everyone who is part of that blockchain’s network.
- A blockchain is append-only, which means that any data that you put into the blockchain cannot be changed. Instead, with blockchain, you add (or append) any changes. Additions or appendments are visible to anyone within the blockchain.
- Finally, blockchains are trustworthy in structure. Trust between parties is guaranteed via consensus mechanisms and cryptography. Think of this as a digital fingerprint with high security.
So why blockchain? Why now?
Blockchain isn’t simply a trending tool or a fad. We believe that blockchain technology is one in a series of technology revolutions, part of a larger group of cyber-physical systems of technology like AI or IoT that will fundamentally change how we interact.
The steam engine bridged distance, the electrical grid bridged the power gap, and the internet and mobile revolution made knowledge-sharing possible in an unprecedented way. Similarly, blockchain bridges the trust gap — our ability to create, manage, and maintain trust between users and systems at-scale.
It does so by bringing together three existing concepts:
- Ledgers — providing traceability and audit trail purposes
- Cryptography — acting as a guaranteed digital fingerprint
- Decentralization — eliminating any single point of failure
The current challenges of trust, cost, and accountability
Blockchain provides an unprecedented degree of certainty when sending any asset — and that matters, perhaps more than it seems at first glance. Consider what happens when you send an email with an attachment like a PowerPoint file. You are not sending the original — you are sending a copy. But when it comes to assets (like money, stocks and bonds, loyalty points, and other assets) sending a copy is a really bad idea. Once someone sends $100, that $100 should not be sent again to others. This has been called the “double-spend” problem.
Today, we rely entirely on big intermediaries — middlemen like banks, government, big social media companies, credit card companies, and so on — to establish trust in our economy and make sure that doesn’t happen. These trusted intermediaries facilitate transactions between multiple parties and help resolve conflict. They make sure everyone is who they say they are and do what they say they’ll do.
These third parties provide valuable services and help mitigate some risks, but they also introduce cost, complexity, and time lags. Relying exclusively on third parties to protect our most sensitive data and transactions can create notable problems for the general public. For example:
- They are not secure. Third parties are centralized, which means they can be hacked. They have been hacked: JP Morgan, the US Federal Government, LinkedIn, Target, Marriott, Equifax, and others found that out the hard way.
- They slow things down. It can take a second for an email to go around the world, but, for example, it can take days or weeks for money to move through the banking system across a city.
- They take a big piece of the action — upwards of 10 to 20 percent just to send money to another country, for example.
- They capture our data, and that means we can’t monetize it or use it to better manage our lives. In its worst iterations, user privacy may be undermined.
Blockchain presents another way
What if there were not only an internet of information? What if there were an internet of value and trust — a global, distributed ledger running on millions of computers and available to everybody? Where every kind of asset, from money to music, could be stored, moved, exchanged, and managed, all without powerful intermediaries?
We saw the need for this new internet of information in 2008. The financial industry — those intermediaries we trusted — crashed. Perhaps in response, an anonymous person or persons named Satoshi Nakamoto published a paper with a protocol for a digital cash using an underlying cryptocurrency called Bitcoin, which is based on blockchain technology. This cryptocurrency enabled people to establish trust and complete transactions without a third party.
The difference between blockchain and bitcoin can be confusing. Bitcoin is simply the first application built on blockchain technology, just as email is an application of the internet. Bitcoin is an asset; it goes up and down, which might be of interest to you if you’re a speculator. More broadly, it is digital cash or cryptocurrency. Its value is not controlled by a nation.
But the real big idea and value here is the underlying technology, and that’s blockchain. With it, people everywhere can transact peer-to-peer, without a middleman. And trust is established, not by some big institution, but by collaboration, by cryptography, and by some clever code. Trust is native to the blockchain technology.
An example: Blockchain and the pharmaceutical supply chain
Let’s think about how blockchain might influence a real-life example.
Think about a supply chain. Its goal is to ideally coordinate external parties harmoniously around supply and demand. But achieving that harmony can be elusive, difficult, and expensive. Time and money are spent on coordination, checking each other’s transactions, correcting errors, and complying with regulations. This is where blockchain can make a big difference.
Consider the pharmaceutical supply chain today and how blockchain can improve efficiency and accuracy by removing fraud, waste and abuse.
Pharmaceutical company regulations require full supply chain traceability for their prescription drugs. Drugs can make or destroy lives. Knowing where they come from and who is the end consumer is critical. There needs to be the ability to trace a drug from its origin to the patient in both directions throughout the supply chain. For pharmaceutical supply chains, verifying drug authenticity not only limits fraud, waste and abuse but it helps to keep patients safe.
And just how big of an issue is this? Approximately one million people die every year from toxic counterfeit drugs, resulting in human misery and over $200bn in lost revenues¹. So there’s a true human cost when we fail to control the supply chain of such a critical resource.
Additionally, if you are thinking that it only happens in developing countries, think again. Some 25% of surveyed physicians in the United Kingdom said they have treated patients suffering adverse effects from a drug purchased on the Internet.
Less tragic but equally real are the financial consequences of counterfeiting. Along with suffering about $215 billion annually in lost sales, pharmaceutical companies are spending big money on any marginally effective anti-counterfeiting measures. Eli Lilly, for example, recently spent more than $100 million on a new system to thwart counterfeiting of their big-name remedies (e.g., Cialis, Cymbalta, and Zyprexa). Even harder to quantify is the reputational cost.
How can blockchain protect the pharmaceutical supply chain?
First, current centralized solutions present a single big target for hackers. With decentralized blockchains, this isn’t the case. Second, blockchain technology enables easy and fast traceability of anything from production to consumption. Third, a significant cost in supply chain management is spent fixing errors between parties. This is eliminated. Fourth, it doesn’t require you to change your supply chain.
An extremely simple example: There are three steps before pharmaceuticals reach the patient, as they move from manufacturing, to wholesaler and finally to the pharmacy or hospital. Each participant in the supply chain — manufacturer, wholesaler or pharmacy — has its own database and often operates in isolation. We all know that it is common to have multiple databases within a single organization. Keeping them in sync within just one organization can be difficult, and it is even more so outside the organization with supply chain partners. No one can see what’s inside each other’s databases. The information is siloed. There isn’t transparency. Supply chain partners are therefore called “untrusted” because the validity of the information is unknown.
Most of the data, however, is common and duplicated with each participant — manufacturer, wholesaler, and pharmacy. If they (the participants in the supply chain) are copying data from each other and re-entering that data many times into their own databases — then there is an opportunity for error. Time and money are wasted making sure it is accurate. And every linkage — those transfer point between each participant in the supply chain — represents an opportunity for fraud.
Now let’s move the supply chain to the blockchain. An external database of sorts is built on the blockchain. The manufacturer moves their data to the blockchain where everyone with permission can view it and refer to it as needed. The same data is shared amongst participants throughout the supply chain.
The wholesaler uses that same data, plus data they specifically need. And, since they are a participant on this blockchain, they can refer to that data on the blockchain added by the manufacturer. They no longer have their own copy to maintain. The opportunity for error is eliminated. The wholesaler has access to all of the previous data and adds to the blockchain any data that is important for them and important for traceability purposes.
The pharmacy also has data it uses on the blockchain, and its own data to add to the blockchain. Now the data can be seen and used by everyone given permission to be on this blockchain:
Recording, validating, and transparency in the blockchain network
But how does this data become linked together? There are other bits of data showing sequential ownership that chain the blocks together. They simply put who the previous and next owners are to each block, chaining them together, hence the term “blockchain.”
If any changes must be made, they need to be appended instead of made directly on the data. Another characteristic of blockchain is that no one can directly alter those blocks we just created. You add the change to the blockchain itself — you append it to the end of chain. Now there is a single record with the data linked together in a way that can’t be changed. Counterfeiters can’t insert themselves into the system due to the cryptographic and distributed aspects designed into blockchain.
At a high level, assets — digital assets like money to music and everything in between — are not stored in a central place. They’re distributed across a global ledger, using the highest level of security or cryptography. And when a transaction is conducted, it’s posted globally, across millions and millions of computers. This means the information is decentralized and distributed.
And out there, around the world, is a group of people called “miners” that provide decentralized security to the blockchain. These are not young people or hackers in some a basement. They are miners of the Bitcoin blockchain. They have massive computing power at their fingertips — 10 to 100 times more computing power than all of Google⁴, Facebook and Twitter combined⁵.
Every 10 minutes, like the heartbeat of a network, a block gets created that has all the transactions from the previous 10 minutes. Then the miners get to work to validate the block, essentially solving a very difficult math problem (computational proof). And they compete. The first miner to solve the problem and to validate the block is rewarded in digital currency, in the case of the Bitcoin blockchain, with Bitcoin. Depending on market fluctuations, this can be a lot of money over time which incentivizes the miners to maintain the ledger.
And then — this is the key part — that block is linked to the previous block and the next block to create a chain of blocks. Every block is time-stamped, like an electronic version of a digital waxed seal.
Thanks to this system of transparency, hacking a blockchain is a nightmare. Say you wanted to “hack” a block by, for example, altering that block to pay someone twice with the same money (i.e., the double spend problem). The hacker would need to stop all incoming and outgoing transactions, then alter a specific block and all its preceding blocks — the entire history of commerce on that blockchain. This would need to be done not just on one computer, but across millions of computers, simultaneously, all using the highest levels of encryption, in the light of the most powerful computing resource in the world.
This is extremely difficult to do. This is infinitely more secure than the computer systems that we have today. And that’s how blockchain works — and why you should care about its transformative ability to protect yourself and your organization’s most sensitive data.
It’s time to move beyond the myths of blockchain
As we established in our example , blockchain technology allows for the exploration of new economic models by eliminating the need for costly intermediaries. Decentralization shifts the power to its users by allowing participants to trust each other via the use of cryptography while also allowing the same participants to verify any transactions that have ever taken place. Blockchain has huge implications for how businesses can function and it can significantly reduce the age-old problem of fraud, waste and abuse.
Despite the revolutionary power of blockchain technology, it’s often misunderstood. Today we’re going to explore and debunk some common myths associated with blockchain.
Myth 1: Blockchain is just a database
This is the most common misconception about blockchain, and the myth that holds people back from seeing the true value of the technology.
Blockchain is more than a database. It prevents double spending by tracking every transaction and making it irreversible. This means there is an unchangeable — or immutable — record of all related transactions that took place over time. The only way to make a change is to add it, or append it, to the existing record of transactions. There is no going back into it like traditional database and making the change. That is blockchain at its core.
So, no, blockchain technology is not just a traditional database. The main thing distinguishing a blockchain from a normal database is that there are these specific rules about how to put data into the database. The data within a blockchain cannot conflict with data that is already in the database, it’s append-only (immutable), and the data itself is locked to an owner².
While blockchain is getting a lot of attention and solves a lot of important problems, it is not appropriate for every situation. In centralized systems, the performance in terms of latency and throughput is generally better than in blockchain systems, as blockchains add additional complexity through their validation as well as consensus mechanisms³.
There is also the myth that everyone can see everything on a blockchain. There exists an inherent tradeoff between transparency and privacy. A fully transparent system allows anyone to see any piece of information. No privacy is provided. Likewise, a fully private system provides no transparency.
Public and private permissioned blockchains differ in that a public blockchain allows anyone to read the contents of the blockchain and thus verify the validity of the stored data, while a private blockchain only allows a limited number of participants to read the chain.
Myth 2: There’s only one way to use blockchain
Blockchain gets its value from competitors (or untrusted 3rd parties) cooperating. There are four ways blockchain could impact an industry, listed in order of most to least disruptive.
Startup. It can be a traditional startup in every sense of the term, or a large player in the space can explore creating an internal stealth start-up that leverages its IP securely and embraces an open-source ecosystem as well as established developer communities.
Consortium. Blockchain enables the world of “co-opetition,” or collaboration between business competitors, in the hope of mutually beneficial results. A consortium is a group of companies that band together to set standards to enable the development of new infrastructures such as those with blockchain. For instance, healthcare blockchain consortium align around new or anticipated regulations and set common goals. Use this approach to understand the common problems industry peers face.
Individual Companies + Holding Companies. Competitors work under the same roof. Blockchain technology allows them to share only the data or transactional information that is needed while helping to obfuscate or anonymize information from competitors.
Individual Company. An intranet is a private network accessible only to an organization’s staff similar to a closed intranet, Sharepoint site, or legacy library systems. Generally, a wide range of information and services from the organization’s internal IT systems are available that would not be available to the public or your peers who may benefit from the Internet. That’s great for certain use cases but introduces waste, opportunities for fraud and potential abuse.
Myth 3: Building your blockchain for your business will be costly and demanding
Actually, there are more options to explore! Your company can integrate blockchain into your business by either buying, partnering, or building.
- Buy: Explore Blockchain as a Service (BaaS) options through AWS, Microsoft Azure, or Google Cloud Platform (GCP).
- Partner: Consider partnering with your peers or competition to form a consortium and agree on shared problem(s) blockchain could resolve.
- Build: Leverage tried and true blockchain technology that has operated in the open (permissionless) and build on these platforms such as Bitcoin or Ethereum. Engage with their communities to drive enhancements and build value together.
Blockchain technology will underpin the next industrial revolution, bridge the trust gap and open new economic operating models across all industries. It is both evolutionary and revolutionary.
It is evolutionary because it is part of a trend of moving from centralized to decentralized systems over time. Computers were originally isolated within companies. Then they moved to connecting companies with EDI and ERP systems. The internet further decentralized computing, and blockchain is the next evolutionary step.
There are good arguments for being either reactionary — learning from the pioneers — or proactive and getting ahead of it. With thoughtful planning and strong understanding of what blockchain is, how it works, and why it is important, you’ll be well-positioned for the future.
[1] Renschler, John P, et al. “Estimated under-Five Deaths Associated with Poor-Quality Antimalarials in Sub-Saharan Africa.” The American Journal of Tropical Medicine and Hygiene, The American Society of Tropical Medicine and Hygiene, 3 June 2015, www.ncbi.nlm.nih.gov/pmc/articles/PMC4455082/.
[2] Song, Jimmy. “Why Blockchain is Hard.” Medium, Medium, 14 May 2018, medium.com/@jimmysong/why-blockchain-is-hard-60516ea4c5c.
[3] Wüst, Gervais. “Do you need a Blockchain?” IACR, IACR, 2017, https://eprint.iacr.org/2017/375.pdf
[4] Smart, Evander. “Bitcoin is 100 times More Powerful than Google.” CCN, CCN, 20 April 2015, https://www.ccn.com/bitcoin-100-times-powerful-google/
[5] Suberg, William. “Bitcoin Hash Rate Record Highs Show Miners Are Long-Term Bullish.” Cointelegraph, Cointelegraph, 24 October 2019, https://cointelegraph.com/news/bitcoin-hash-rate-record-highs-shows-miners-are-long-term-bullish
