Blockchain – Beneath the hype

Blockchain was first invented in 2008 as a delivery service for the well-known Bitcoin cryptocurrency. Since then, interest in the other uses for the secure blockchain technology has grown in orders of magnitude. In May this year Facebook announced it the launch of an internal team dedicated to discovering uses for the technology1. Just last week the Bank of America applied for a blockchain-related patent to for the purposes of developing a cryptocurrency data storage system2. But beneath all the hype and chatter, what is blockchain and how can it benefit your organisation?

There are many different definitions of what, exactly, blockchain itself is and how it should be implemented. This confusion and lack of clarity can lead to misinformation and misunderstandings for businesses and governments that are interested in making use of the technology. This can be disheartening for organisations that are well positioned to innovate in this space, but do not know whether blockchain is a suitable technology for them.

Put succinctly, blockchain is ‘an append-only transaction ledger’. It is naturally immutable; meaning information that is written to the ledger cannot be changed in any way after it has been written without it being detected. This is achieved by associating the data together in blocks before using cryptography – or mathematical proof – to link the contents of the previous blocks to the following one. This means that any change to the contents of a previous block in the chain would refute the data in all the subsequent blocks.

Blockchain technology is also built on a form of distributed-computing. A number of machines, known as ‘nodes’, are positioned in separate locations and usually owned by separate parties, often referred to as ‘miners’. These nodes are connected to the blockchain network and must report the same transactions to ensure that there is a consensus across all nodes within the network. The result is that no single machine has the ability to take over control of the blockchain. Importantly, one of the primary principles of blockchain is that it is transparent, meaning that all parties privy to the blockchain should be able to see the details of the transactions to ensure integrity3. You should be cautious of anyone who attempts to claim other definitions of the blockchain, odds are they’ll be trying to sell you something.

A common misconception with blockchain is that it is improving technology in the usual fashion, by making the exchange of information faster, efficient and more secure. However, blockchain was created to empower individuals to exchange currency or assets without the assistance of a third party. This design enables and prioritises the exchange of value, rather than information. Therefore, blockchain is not faster or more efficient. In fact, it could currently be considered to be much slower and less efficient. For example, a financial payment system such as Visa currently undertakes around 56,000 transactions per second4, while Bitcoin can currently make only seven5.

Scaling up the size of the Bitcoin network is not as straightforward as it may seem. It is estimated that the Bitcoin blockchain would need to grow to 214PB in order to equal something like the power of Visa6. Not to mention the current power requirements used by Bitcoin already equate to $15 million worth of power each day due to the sheer number of crosschecking that the blockchain requires to make a single transaction.

So if blockchain isn’t making things faster or more efficient, what can it be used for? Although its current primary use has been to enable the functionality of cryptocurrencies7, the technology itself presents several new opportunities in existing spaces, including shared knowledge repositories, medical insurance, anti-counterfeit solutions, smart contracts, and proof-of-existence for photos, documents and media8. In addition to improving functions within existing fields, blockchain technology can also assist with accessing distributed GPUs and decentralising the rapidly increasing ‘internet of things’.

The main advantage of blockchain is that the security is extremely difficult to manipulate. This is absolutely the case, however even the blockchain is susceptible to certain techniques. Though it is extremely difficult to pull off, if a large number of users can change enough versions of the blockchain in order to convince the checking algorithm that there is a consensus, the blockchain can become compromised9. This is why transparency is so very important to the model. It also infers that background checking the miners should be a priority prior to allowing participation.

Blockchain will undoubtedly revolutionise processes used to organise, record, authenticate and verify transactions in the years to come. Documentation, and even digital ownership across both government and business services could also see huge enhancements if properly integrated with this emerging technology. Overall however, blockchain technology is still immature and, despite the hype, technical limitations that compromise the ability of the technology to be implemented at an enterprise level do, in fact, exist.

Resources:

1 https://www.recode.net/2018/5/8/17329696/facebook-blockchain-crypocurrency-david-marcus-crypto-messenger-app

2 https://www.investopedia.com/news/bank-america-applies-blockchainbased-crypto-storage-patent/

3 https://www.forbes.com/sites/forbesagencycouncil/2018/04/05/what-is-blockchain-and-what-can-businesses-benefit-from-it/#6da0951675fe

4 https://energyweb.org/2018/05/10/when-it-comes-to-throughput-transactions-per-second-is-the-wrong-blockchain-metric/

5 Swan, M. (2015). Blockchain: Blueprint for a New Economy. O’Reilly Media Inc.

6 Yli-Huumo, J., Ko, D., Choi, S., Park, S., & Smolander, K. (2016). 1.1 Where Is Current Research on Blockchain Technology?—A Systematic Review. PLoS ONE, 11(10).

7 Crosby, M., Nachiappan, Pattanayak, P., Verma, S., & Kalyanaraman, V. (2016). BlockChain Technology: Beyond Bitcoin. Applied Innovation Review(2), 5-19.

8 World Economic Forum. (2018). Blockchain Beyond the Hype: A Practical Framework forBusiness Leaders. World Economic Forum.

9 Lim, I. K., Kim, Y. H., Lee, J. G., Lee, J. P., Nam-Gung, H., & Lee, J. K. (2014). The Analysis and Countermeasures on Security Breaches of Bitcoin. In B. Murgante,     S. Misra, A. C. Rocha, C. Torre, J. Rocha, & M. Falco, Computational Science and Its    Applications (pp. 720-732). Springer International Publishing.