January 25, 2018

What Should I Know About… Blockchain?

Blockchain is a new technology that has been getting increasing attention in the press recently with promises of revolutionising how business, government and society will operate.

This post covers blockchain at a conceptual level before delving into its applications and how you can think about it in the business that you run.

The core concepts of blockchain

To get us started we’ll consider some points which are important foundations to build upon.

Movement of information

A blockchain is a record of transactions.

You can view transactions as any time there is a transfer of information from one party to the next.

This works for obvious examples such as when you exchange money for a chocolate bar, all the way through to updating medical records, placing a vote or indeed anywhere that two parties interact.

Ledgers

A ledger is a record of everything that has happened.

In business terms, think of it like a database that keeps records of every transaction

Traditionally you might have had one Excel file called “Master copy” which was kept by you. People would send in their records and you would make sure everything was up to date. If ever anyone had a query, you’d refer to the Excel file – this was the truth.

Then came Google Sheets. Here, anyone can make a change to the spreadsheet and it’s available for everyone to update and see in real time. What’s more, a record is kept of every time something is changed, and so if something looks fishy, you can go back and see who did what.

“Google Sheets is conceptually similar to blockchain”

You can have a private ledger which is just for a select group of members (think intranet) and a public ledger which anyone can participate in (think internet).

Validation

In terms of validating that a transaction took place, each computer in the network will essentially have a little task to go in and check that, say, the information moved from A to B.

In the Google Sheets example, you’ll notice there is sometimes a small time lag when two people are working in the sheet at the same time. This is because the system has to ensure that the information is the same everywhere and update accordingly.

Whilst this might sound trivially small, having this done for millions and billions of transactions requires a lot of power, especially to do so quickly.

Cryptography

Whilst on Google Sheets you might be happy updating with information that’s not too sensitive, when it comes to more personal things, you might not be comfortable telling the world (or at least other members of the community) all about it. Think of your banking transactions or medical records

This brings in the element of cryptography.

There are two versions of each piece of information that you have, a public and a private version.

The private version makes sense to the person who owns it, and could be something like your medical record.

• Mr Joe Bloggs has not had a vaccination for Hepatitis A

Let’s say that Joe has his vaccination and the information is then changed. Privately it would say

• Mr Joe Bloggs has had a vaccination for Hepatitis A

However before being shared publicly it would be changed to be unreadable for any other person (encrypted) so might say

• t34n&£)v<;pgSEe changed BR%$DF*$)%pp@/DS89|++’qw3 to 6h&dfijthsd4 at 25/01/2018 10:00

Everyone in the network would see the encrypted version of what happened, and confirm that this took place. Once they do, it would then be accepted as the truth.

If ever there was a dispute about whether something happened, it can be traced back to that point in time and seen to there.

Why was this hard to do

Theory

From a computer science perspective setting up a system whereby multiple computers can validate something without the need for a central authority was incredibly tricky. Inroads were made in the early 1990s which are discussed by prominent Venture Capitalist Marc Andreessen a few years ago.

Practice

The solution came in having a network of computers all able to share information quickly. The precursor for blockchain was the internet.

However rather than simply loading a webpage, in order to validate all of the transactions in the network, computer processing power needed to be high.

In the same way your computer sometimes goes slow when you try to open a large file, massive computers need to munch through all of the calculations to validate different transactions have taken place.

This hasn’t historically been possible with the early versions of computers, and only recently have developments in computing processing power made this possible.

Implications

The biggest implication in adopting this type of blockchain technology is that the truth no longer resides in one place.

Whilst this might sound abstract, what it means is that if ever you needed to confirm, say, that you had ownership of the car you have, you would likely go to the Driving Authority, find the record of purchase and then everyone would believe this as the truth.

If, however, the Driving Authority was hacked, and someone changed the name of the owner to that of Joe Bloggs, then Joe Bloggs could also go and lay claim to the car. He would have an official document which said he owned the vehicle and, as you believed you still had the right to it, a costly dispute would entail to determine who actually owned the car.

An analogy

Think of important sensitive information that you have being stored in a house.

In order to protect it, you’ll want to make your house as secure as possible, installing locks on all the doors (passwords) and even putting up an electric gate (firewalls).

Despite all this, someone could try and break in, and once they do they’ll have access to all of your sensitive information. It’s all sitting there in one place.

What blockchain does is take bits of your sensitive information and spreads them out across the whole town.

Now if someone wants to get that sensitive information they need to get into all of the houses in the town, which is nearly impossible

Won’t that mean everyone can see the sensitive information?

As we covered before regarding cryptography, because the information you’re sharing across the town is encrypted, no one can interpret what is being sent

Why is it called blockchain

All of those transactions we’ve just spoken about (A gave money to B, C updated medical records to D) get bundled together into a block of transactions.

When each computer in the network validates them, they add it to a chain of previous blocks which were validated and then becomes “the truth”.

There’s then time it takes for all computers to process this new block, and once done, the new block is added to the chain of previous blocks. Hence, a blockchain.

Why would anyone want to validate these transactions

It’s a good question, and this is the concept behind “cryptocurrencies”.

In exchange for the computing power expended validating the new blocks of transactions that happen, the person is rewarded with a token.

As these tokens are finite in supply, some people place value on them. Hence, owning one of these tokens can be used to purchase goods from others who are willing to accept it.

That gets us into Bitcoin/ cryptocurrency territory though, so we’ll leave that for now.

Why all the excitement?

Without having the need for independent arbitrators (or “middle men”) many aspects of an interaction become much more secure and efficient.

No central authority is responsible for a record of what has happened as things are externally validated by a network of people.

With the possibility of that the central authority can be hacked (think of all the stories of data breaches in the news recently) this means that any form of transaction can be made more secure by being adopted onto a blockchain

The other consideration is placing trust in the central authority that they will keep things the way they said they would.

In the UK, US and other parts of the Western world there is typically a high degree of trust that, if you submit your land rights to the land registry, when you come to sell your house in years to come, that piece of paper will be accepted by the relevant parties.

Elsewhere in the world though, such trust does not exist. Governments may decide to ignore such documents, or the relevant parties may not believe it to be legitimate. This is raised by the inventor of one of the largest public blockchains.

“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, the Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.”

With information stored on a blockchain it gives a secure and public record of what transfer of ownership took place which is indisputable (because the network validated it).

Anarchy

You might say, “Oh, well the [government] could just decide to ignore that”. And that’s the situation blockchain advocates are trying to avoid.

This concept of “the people” relying on themselves to determine what has/ hasn’t happened is by its nature quite “anti-establishment”.

Blockchain was developed by anarchists

The roots of the blockchain movement are in trying to remove a central governing body from the interactions of everyday people.

Applications of blockchain

Having information distributed means it is less susceptible to attack (as there’s not one point of focus) and as a result things such as data breaches should become less common.

Logic would say that any industry where there are a number of transactions can be made more secure by adopting blockchain technology. Namely,

• Banking sector
• Voting
• Healthcare records

This also requires you to broaden your definition of “transaction”. Viewing transactions as the movement of information this then brings in other industries such as law (contracts can be arbitrated), KYC requirements (everyone confirms this person is who they say they are) and supply chain logistics (ensuring traceability of materials).

For more on this read this excellent overview on Blockchain (admittedly from ardent Blockchain supporters) and this piece around investing in Blockchain.

Conclusion

From this article we hope to have at least somewhat demystified some of the noise around blockchain technology.

It’s still very much in its infancy, and so whilst a number of large organisations are looking to implement this within their firms, it still has a while to go in terms of practical applications.

There are examples of it in use (such as “smart contracts” in the shipping cargo industry) and so as the field develops further keep in mind how it can affect the particular industry you’re in.

And if there’s one thing to remember, it’s: any movement of information can be made more secure on a blockchain.

We hope that you found this post informative and thought-provoking. If you’d like to be notified of the next post, or learn more about how Inspira UK can help your business grow, then you can sign up to the newsletter and contact us here.