Blockchain for the Businessperson
This is going to be a reasonable attempt at explaining Blockchain technology while deliberately avoiding any cryptic technical jargon. Blockchain concepts will be explained in plain English using a universal business tool, the spreadsheet. The image below should be very familiar, a spreadsheet with rows and columns of data. This spreadsheet is a rough representation of a blockchain.
A blockchain is quite literally a chain of blocks. Blocks contain data and in our spreadsheet a block is represented by a single row. The very first row is called the starting or genesis block. The second row/block is attached to the first row. The third row/block is attached to the second row and so on and so forth. Every new row/block added to the sheet has to reference the row before it. This forms the chain in the blockchain.
Digital Fingerprint, the most interesting part of blockchain technology
Let us look closer at the data inside our spreadsheet/blockchain. The first column Block No is a simple incrementing number assigned to each row/block. The next column Transaction Time is a timestamp to show when this row/block was created. The Transaction column contains our transaction data. This is then followed by the Digital Fingerprint, the most interesting part of blockchain technology. This column holds a series of characters that uniquely represent the data inside the block. If the data in the row/block changes then the series of characters also change. It is not possible to alter the data in the row/block without also altering the series of characters. These series of characters are the distinct fingerprint of the data inside the block. And this is a security feature of blockchain.
Finally, the Previous Block Fingerprint as the name suggest, contains the Digital Fingerprint of the prior row/block. The Digital Fingerprint together with Previous Block Fingerprint creates the chain between the rows/blocks.
…almost all systems on the Internet have vulnerabilities that can be exploited to gain unauthorized access…
So far it would seem like all this is an unnecessarily complicated way of dealing with simple transaction data. As I explain further it will be clear why blockchain is the future of storing data in internet exposed systems. The biggest problem with exposing stored data in the internet is security. Anybody (cybercriminals, malicious employees, etc.) with access to data can alter it to suit their personal agenda. If done with sophistication it can go unnoticed for months. Couple this with the fact that almost all systems on the internet have vulnerabilities that can be exploited to gain unauthorized access to data stored in them. As an example, if this spreadsheet exists on Google Sheets and a clever hacker hacks Google they will have access to this spreadsheet and can add/update or remove rows.
In addition to security there are issues with data loss due to system failures. For example, the computer holding this spreadsheet stops working causing us to lose all data. If we are diligent enough to take periodic backups we might still lose access to all the newly added rows that were yet to be backed up.
Now let us see how blockchain solves these problems. Blockchains are always stored in multiple locations. Our spreadsheet is one copy of all the blocks in this blockchain. There will always be multiple copies of this spreadsheet maintained by multiple organizations/individuals. This way if a copy of the spreadsheet is lost we can always recover from the other copies.
To keep all copies of the blockchain up to date, each entity who adds a row/block to the spreadsheet is then required to tell the others to also add this new row/block to their own copy of the spreadsheet. Now let us address the security aspect. The rows/blocks are immutable meaning once added to the blockchain they cannot be tampered with. If an organization/individual gets hacked and has their copy of the spreadsheet altered it gets noticed immediately. This is where the Digital Fingerprint column comes in to play. When a hacker alters data in a row/block of the spreadsheet the Digital Fingerprint changes. This causes the link in the blockchain to break. The picture below explains the problem. When a new row is added in this hacked spreadsheet it will use a different Previous Block Fingerprint. Now when other organizations/individuals are notified to add this new row they can reject the new block as it is not consistent with other copies. This is one of the ways blockchain provides security against data alterations.
A robust implementation of blockchain can provide an extremely secure and fully redundant mechanism of storing transaction data. Bitcoin is a real life example of blockchain technology. Bitcoin is an open blockchain accessible to anybody in the world. Even with tremendous financial incentives the most powerful of hackers cannot hack it. Bitcoin is a testament to the strength of blockchain technology.
While Bitcoin is one of the implementations of blockchain technology. Our humble spreadsheet is no comparison to what goes on inside Bitcoin blockchain. Explaining Bitcoin implementation is light years beyond the scope of this article. Blockchains can be used to save land records for easy title searches. Medical billing can be moved to Blockchains to speed up payments and smooth reconciliation among stakeholders. Print and audiovisual media can finally tackle the problem of piracy. I will be writing a different piece for this use case.
Smart Contract — An extremely elegant solution to a common business function.
Another very interesting offshoot of Blockchain technology is Smart Contracts. As the name suggests these are contracts that have some smartness embedded in them. For example, you sign a smart contract with me for a set of deliverables. I complete all the deliverables on the smart contract. The smart contract pays me automatically. An extremely elegant solution to a common business function. The more you explore this technology the more you will agree that Blockchain is the future. And why it is aptly referred to as Internet 3.0.
Your customer wants speed, convenience and control over their transactions. Blockchain technology offers all that along with increased transparency, lower costs, and improved efficiency for your business. This is the time to take the lead with blockchain technology, way before your competitors get to disrupt your business.