What is blockchain technology – and how does it work?
As bitcoin continues to make the news, exactly what is blockchain technology – and how does it work? Jim Truscott explains.
So this blockchain thing – what’s the background?
Over the last couple of months, the digital currency Bitcoin has made the news consistently, with the price per coin growing from around $6,423.61 (April 1, 2020) to its peak of almost $42,000 (January 8, 2021). And while bitcoin is currently seeing a correction in price, digital currencies and the blockchain technology that underpins them do not appear to be going anywhere soon, with businesses across various industries seeking to use the technology to drive innovation. But what is blockchain technology, how is it different from bitcoin, and how can it be used to drive innovation?
You might be surprised to learn the blockchain concept isn’t that new. Cryptographer David Chaum first proposed a blockchain-like protocol back in 1982, in his dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.” Further work on a cryptographically secured chain of blocks was described in 1991 by Stuart Haber and W. Scott Stornetta.
The first actual working blockchain was bitcoin, introduced by Satoshi Nakamoto in 2008. Despite creating one of the biggest technological advancements seen in decades, Nakamoto is thought to be a pseudonym and the identity of the person or persons behind it has been the subject of much speculation – to no avail. 12 years later, cryptocurrency has become a near trillion dollar industry and whoever is behind the Nakamoto profile is now worth $40bn, yet his/her/their bitcoins have remained untouched since launch.
Okay, got that, but what exactly is it?
The Wikipedia account of blockchain describes the technology as ‘a growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp and transaction data. By design, a blockchain is resistant to modification of its data. This is because once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks.’
It’s speculated that the launch of bitcoin was in response to the 2008 financial crisis and the practises of banks around the globe. With this in mind, blockchain technology is often a public, digital ledger consisting of blocks of records that are used to record transactions, and this openness is seen as a direct reaction to banking practises with Nakamoto stating: ‘Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reverse. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.’
From here, the use of blockchain technology has also become popular outside of fintech businesses, with companies across a wide range of industries using blockchain for smart contracts, cloud storage, paying staff and suppliers and proof of provenance, among other things.
How can businesses use blockchain?
During the past decade the use of blockchain has become more and more prevalent in numerous industry sectors, with the majority of the financial industries using distributed ledgers, and banks using the technology to speed up their systems. From here it has also been used heavily in energy trading and to improve supply chain management across a variety of industries.
For examplem, in 2018, dozens of people across the country got sick from eating contaminated romaine lettuce. Unsurprisingly, Walmart did what most grocers would do in this situation, and cleared every leaf from its shelves. However it then followed up with the announcement that it would be using blockchain technology to track its produce, meaning every bag of spinach and head of lettuce has detailed information attached to a blockchain database allowing Walmart to identify easily any contaminated veg.
The technology has also been used extensively across the healthcare sector, with a range of public and private producers using the technology to keep medical data safe and secure. It is estimated that between 2009 and 2017, more than 176 million patient records were exposed in data breaches with thieves stealing personal information such credit card and banking details. As the blockchain records are decentralised, transparent and incorruptible it is the perfect technology to be used for security and is being actively used to keep patient records safe. This also allows healthcare professionals to streamline records, send them quickly and ultimately reduce costly mistakes.
What’s more property and real estate companies are using smart contracts to complete deals, and cryptocurrency to make transactions quickly and easily. Across the pond there has also been a rise in blockchain-based, real estate start-ups with New York companies like ManageGo and PropertyClub achieving success with new blockchain-based models.
Blockchain technology has begun to be widely used across all sectors and by businesses of every size, as companies look to future-proof their businesses, manage their supply chains and audit trails more efficiently and to make their business systems faster and more secure. A look online will provide you with a whole host of examples, including logistics, banking, hedge funds, infrastructure and security, marketing and advertising and education.
Can it help my business?
If you want to find out how your business can use blockchain technology, or just want to find out a little more about it, get in touch today and we can discuss your options with you in more detail.