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The 101 on Blockchain Technology

Blockchain – it might sound a bit like a medieval fabric, but there’s nothing primitive about this database that upends all expectations of what a digital archive has the capability of doing.

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Blockchain – it might sound a bit like a medieval fabric, but there’s nothing primitive about this database that upends all expectations of what a digital archive has the capability of doing.

Blockchain – it might sound a bit like a medieval fabric, but there’s nothing primitive about this database that upends all expectations of what a digital archive has the capability of doing.

Most databases provide a centralized data storage; as such people and systems who need access to the data must come to that single source to query and receive.

Blockchain, however, is a de-centralized database; there are multiple copies of the blockchain database, and each copy is considered a “peer” of the others. Inasmuch, when a change occurs to one copy, the technology works to ensure that the same change is applied to all, so in effect, there is no “master” database.

In many ways, the Digital Revolution has made the world a less trustworthy place. Individuals are tricked by simple “phishing” emails. Imposter web sites pose as banks and other credible parties, luring people into sharing sensitive information. The Dark Web is a black market for personal data. These facts are unfortunate and scary.

Contrast this with a fully transparent, multi-party blockchain database. By permitting companies to share copies of a blockchain database, the information contained therein becomes credible and trustworthy, because all of the participants hold their own copy of the database. Any new data arrives in each participant’s copy of the blockchain database in real time, and there is no need to consult a third party – each participant has an authoritative ledger.

Blockchain is truly a new kind of database for the digital age.

Some might question the need for multiple copies of a database. As an example, consider the case of a relatively small database where authorized parties require maximum visibility. Another instance would be online document sharing; in this scenario, multiple users can make edits to the same piece simultaneously instead of saving manifold file versions or circulating a file or document from person to person.

Think of blockchain technology as shared documents; both distribute information in a peer-to-peer mode with updates to the document in real time, and all parties have access to the most current version of information. Blockchain has two fundamental functions – record-keeping and transacting.

Distributed record-keeping on blockchain provides the capability to store and manage static reference information that require high levels of trust. This element is essential in the current digital environment where identity fraud is alarmingly prevalent.

Distributed transacting offers the ability for multiple parties to garner an unprecedented level of visibility and transparency into many kinds of transactions. Consider the manufacturing industry, where each participant in a supply chain relies upon receiving and shipment information from a network of vendors. On-time delivery of raw materials and/or components can make or break a small manufacturer’s production schedule and profitability. Blockchain reduces information complexity, increases reliability of supply chain logistics and improves overall efficiency.

At the core of blockchain are three concepts: an immutable ledger, data validation and consensus. As an immutable ledger, the blockchain database is an “insert only,” so accepted records cannot be changed. Unlike traditional databases that perform logical checks on information prior to acceptance, blockchain does not validate data for accuracy nor completeness prior to it being logged. Since it operates on a consensus basis, most blockchain participants “accept” the transaction before it is immutably logged into the database.

Consensus, though, is a double-edged sword. The advantage of consensus is the real-time distribution of information to all blockchain participants. This drives significant efficiencies in supply chain management. Another advantage is the trustworthiness of the data, because an immutable ledger cannot be altered after consensus is achieved. A manufacturer’s supply chain is typically populated with organizations which are several transactions away – Six Degrees of Separation, if you will. Do you want to know all the participants in your supply chain? Probably not – you just want your vendors to meet their commitments. If you did try to track ALL of the participants in your supply chain, the complications would be horrendous. But with consensus in blockchain, you don’t need to know all the participants – it’s multi-party – to still see what’s happening in the network in real-time.

The disadvantage of consensus is it performs no completeness or logical check on data recorded in the blockchain. This means that specialized implementations may be required to meet the demands of your use case. For example, if you need to know the country of origin for certain metals in the ledger to ensure they do not come from conflict zones, then you need an implementation of blockchain which requires that information before consensus can be achieved.

Additionally, in terms of security, blockchain consensus does have the potential to introduce vulnerabilities. For example, a hacker could convince more than 50% of the blockchain databases that there has been an entry to the ledger. In this scenario, the consensus ratio could be tipped, opening the door for malicious data to be accepted. The good news is that this type of attack requires an enormous amount of computer processing power.

For sure, there have been many advances as a result of the Digital Revolution, but for each advance, there seems to be a reactive menace that sometimes outweighs the benefits with the risk. For its many practical applications, blockchain is fighting this trend, making business operations more efficient and secure.

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