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Seven Questions to Help Demystify Blockchain

A 2015 World Economic Forum survey suggested that 10 percent of global GDP will be stored on blockchain by 2027.  Are you ready?

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A 2015 World Economic Forum survey suggested that 10 percent of global GDP will be stored on blockchain by 2027.  Are you ready?

This article is the first in a Blockchain technology series from blumshapiro.

What is Blockchain technology?

Let’s start with the fundamentals, as well as clarify some misconceptions you may have about the technology. A Blockchain is a database, one that upends our basic expectations of what a database can do. Most databases provide centralized data storage, a single place to query for data, a single version of the truth. People and systems who want access to the data must come to the single, and central, database to get it. Blockchain is a de-centralized database. There are multiple copies of the Blockchain database, and each copy is considered a “peer” of the others. That means that when a change occurs to one, the technology works to ensure that the same change is applied to all. In Blockchain, there is no “master” database.

But, why would we want multiple copies of a database? If the database is relatively small, and we want authorized parties to have maximum visibility into the contents of the database, then we might want multiple copies. Consider online document sharing: in these systems, we have multiple users making edits to the same piece of data simultaneously as opposed to saving multiple file versions or circulating a file/document from person to person.

Blockchain technology can be thought of like shared documents. Both are distributing information in a peer-to-peer fashion. Updates to the document are in real-time with all parties having access to the most current version of the information.

What does “Blockchain” mean?

Blockchain refers to the cryptographic hashing that enables peer databases to remain in sync. Blocks of data are written to the database, and cryptography is used to “chain” the blocks together; therefore, forming a block-chain. Each block of data written to the blockchain is immutable – it cannot be updated later.  Sometimes, Blockchain is referred to as an “Immutable Ledger.”  This simply means that the database functionally is “Insert Only,” you cannot delete or edit the data.

Is there only one Blockchain?

No. In fact, different types of Blockchains have been developed since its creation, and there are different ways of granting permission. Public Permission-less Blockchains are fully open to the public, the most famous example of this being Bitcoin. Public Permissioned Blockchain is less well known, but when we talk about “Smart Contracts,” we are talking about Public Permissioned Blockchains. Permissioned Private Blockchains are implemented within a consortium or group.

Is Bitcoin Blockchain?

No, the two are distinctly different. Bitcoin is a cryptocurrency that operates on a type of Blockchain technology acting as a financial ledger or record of transactions. Putting this into financial terms, if Bitcoin is the currency, Blockchain is the central banking authority tracking all the activity amongst participants.

Is Blockchain secure?

Before answering this, let’s understand three fundamental Blockchain concepts: an immutable ledger, data validation, and consensus.

  • Blockchain is an Immutable Ledger. As we explained earlier, the database is “Insert Only”. Accepted records cannot be changed.
  • Blockchain does not validate data. Unlike a traditional database that performs logical checks on the data before it is accepted, data entered into the Blockchain is not validated for accuracy or completeness before being logged.
  • Blockchain operates on a consensus basis. This means that most of the participants “accept” the transaction before it is immutably logged into the chain of blocks. There are several frameworks for consensus, based upon the type of Blockchain.

But could your Blockchain be hacked? Blockchain consensus can introduce risk because a hacker could convince more than half of the Blockchain databases that an entry to the ledger has occurred. In this case, technically speaking, it’s possible to tip the consensus ratio (50.1%) and have malicious data “accepted.” Practically speaking, this type of attack requires a ton of computer processing power to be successful. The more participants (or owners) in the blockchain database, the more challenging the task becomes to beat the consensus algorithm.

Why Blockchain?

Blockchain databases amplify trust in the digital world. Returning to the shared document analogy, Blockchains operate with “Track Changes” on continually. This would be like having a shared document with track changes always on, storing an immutable ledger of all changes made, by all participants with access to the document. This way all adjustments made to the information within the shared document are tracked on top of each other, in chronological order, by participant. This results in full transparency; there is no potential for one adjustment to be hidden from the other participants involved in the shared document.

How would I use Blockchain?

According to McKinsey[ii], there are two fundamental functions for Blockchain technology, record keeping and transacting.

Distributed record keeping on blockchain offers the ability to store and manage static reference information requiring high levels of trust. In today’s digital environment, with identity fraud frighteningly pervasive, a highly trusted record of identity would have sweeping impact. Or consider the real estate industry: trustworthy information relating to land titles, property addresses, and previous sales prices or contracts offers benefits to reduce cost and risk.

Distributed transacting on Blockchain offers the ability for multiple parties to gain an unprecedented level of visibility and transparency into financial transactions. Again, Bitcoin is the most famous example. But consider the construction industry, where general contractors are responsible for massive investments and activities from multiple parties. You can read more about how construction projects use Blockchain for tracking vendor or subcontractor accounts payable here (link to Will’s article – “Blockchain: A Tool for Real Estate Transactions in the Construction Industry”

In the next article of this series we will begin to discuss in more detail the specific impact to the aerospace industry upon implementation of Blockchain technology, and the specific uses of the technology within this industry.

 

[i] “Deep Shift: Technology Tipping Points and Societal Impact”, https://www.weforum.org/reports/deep-shift-technology-tipping-points-and-societal-impact

[ii]“Blockchain beyond the hype: What is the strategic business value?”, https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/Blockchain-beyond-the-hype-what-is-the-strategic-business-value

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