As terms and concepts go, blockchain has more than enough buzz to go around. But although most people know that blockchain is the underlying technology that makes digital currencies work, they don’t always understand that it offers benefits that go well beyond currency to support all kinds of corporate and government operations, both efficiently and securely. Getting one’s head around all this requires a basic understanding of what a blockchain is, how it works and what kinds of things it’s good for. So, let’s dig in!
What Is Blockchain?
A blockchain is essentially a list of records, each of which is called a block. Blocks (or records) link together using special cryptographic operations. Block N (the Nth item in the list) contains a specially calculated value of the preceding block (Block N-1) called a cryptographic hash, along with a timestamp, and transaction data for the current block or record.
The blockchain is deliberately designed to resist unauthorized or improper modification of the data in a record. The Harvard Business Review article “The Truth About Blockchain” defines a blockchain as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”
When used in this way, a blockchain works in a peer-to-peer network, using a specific protocol for communications and for validating new blocks. Once a block is recorded, its data cannot be altered without also altering all subsequent block, which requires consensus from a majority of blockchain participants. This is why blockchains are often described as secure by design.
4 Key Capabilities of Blockchain
Beyond providing a way to create (and securely subdivide) units of cryptocurrency (usually called coins), blockchain offers numerous additional benefits that go well beyond digital currency.
- By design and deliberate implementation, blockchain builds strong security and a transparent audit trail into its creation of hard-to-change records for new data and transactions.
- Blockchain provides open, transparent mechanisms to create, record, and store data and transactions automatically with little need for human interaction or communication. Economists call such transactions frictionless because they require little or no human input, decision making or permission granting in real time.
- Because a blockchain is a cooperative, open and transparent effort, it can consolidate data from numerous and various systems. Blockchain is inherently distributed and decentralized.
- Because the blockchain carries a complete and open record of transactions and data, it guarantees end-to-end visibility and transparency for all who partake of its capabilities.
Potential Blockchain Applications
Because blockchain is open, transparent, secure and easily available to anyone willing to use the necessary software and buy into its authentication and validation mechanisms, it offers a wide range of potential applications.
For example, blockchain’s ability to offer secure and ubiquitous access to records makes it an interesting candidate to capture and transport medical records and other health information. Strong cryptography means the contents of records would only be visible to those authorized to create, view or store them, so compliance with the Health Insurance Portability and Accountability Act (HIPAA) and other regulatory frameworks is relatively straightforward.
Likewise, because governments at many levels – local, state and federal in the United States, for example – may wish to interact with individuals, businesses and other legal entities for the purposes of filing and paying taxes, blockchain offers interesting capabilities to support the activities and transactions necessary to support these activities. One can also readily understand that government benefits programs, such as Social Security, Medicare and Medicaid in the United States, and various forms of social assistance (food stamps, financial aid programs, etc.) could easily fit into such a framework as well.
Private applications are nearly endless in scope and potential scale. Publicly held companies could issue and manage shares of stock using a blockchain. The transactions that drive a supply chain to provide inputs to products and services could also fit this model, as could the ensuing transactions that occur when products, services or subscriptions are purchased and buyers and sellers need to interact and communicate about such transactions.
Learning More About Blockchain
To learn more about blockchain, better understand its inner workings and identify the wide range of blockchain initiatives underway, CompTIA’s “Harnessing the Blockchain Revolution: CompTIA’s Practical Guide for the Public Sector” is a great place to start.
This report includes a nice blockchain primer, but it also provides an overview of initiatives underway at federal, state and local levels of government. It also describes public use cases that involve governments, the private sector and individuals in creative and useful ways.
The whitepaper also explores various blockchain policy networks, including projects from the Linux foundation for consensus building (Fabric), centralized identity (Indy) and distributed ledgers (Sawtooth). It provides pointers to the Ethereum framework used to build smart contracts and for supply chain management and Ethereum’s own cryptocurrency. Similar frameworks for financial services (Quorum and Ripple), for private blockchains (Multichain), and for general-purpose blockchain-based solutions (R3 Corda) are also mentioned.
Digging into the literature and the various blockchain frameworks will lead naturally into design and implementation considerations. While some organizations may choose to roll their own solutions, many more will turn to consulting companies or organizations to obtain blockchain solutions as needed. By their very nature, blockchain solutions lend themselves especially well to cloud-based implementations and “as-a-service” forms. See Appendixes B and C in the whitepaper for ready access to research materials and blockchain documentation.