Blockchain could well be contender for most buzzwordy technology topic of the year: a somewhat cryptic name with very complex technology behind it and the promise to change the world. But is it for everyone?
It’s important to understand that blockchain is a technology that came out of the cryptoanarchist cypherpunk movement and the idea of decentralization of trust. How could we exchange value – in the example of cryptocurrencies, money – without requiring a centralized government-backed institution to verify and approve the transaction?
Let’s take a step back and look at its component parts. Blockchain is essentially a database. It’s a database that contains a list of transactions of things being exchanged from one place to another. And, most importantly, each transaction embeds a copy of the previous transactions in a way that it’s almost impossible to change a transaction after it’s happened because you’d have to change every single other transaction in the entire block. This chain of blocks gives blockchain its name.
Imagine a private blockchain where a company has five suppliers that all need to interact. If you create a private blockchain where the five suppliers and the company have access, each party can add data in a trusted way which is recorded indelibly for the future. This is great for audit control. It’s also great because you can build in intelligence – these are things called smart contracts – into the blockchain. So, for example, you could create a transaction which says “once a supplier has shipped this item, pay them” or perhaps “once DHL has confirmed delivery of the item, pay the vendor”.
Blockchain is showing a lot of promise, especially in the area of provenance. For example, IBM and Walmart partnered to track the provenance of their produce on a blockchain. They used a blockchain product called Hyperledger which has been developed by a consortium spearheaded by the Linux Foundation. For Walmart, this implementation decreased the amount of time to trace a bag of mangos from over 6 days to 2 seconds.
Although blockchain enables a high level of trust using public key cryptography, it is by no means completely secure; nothing is. In fact there are a number of ways you have to be very careful with blockchain technology. One is protecting your public-private key identity. The other is making sure there are no glitches in your smart contracts. But other than that, what it does secure is the quality of the data that is stored.
So there’s a lot of promise around the technology, but it’s still very early days.