The blockchain technology – popularized by digital currency Bitcoin – is increasingly being used to design trust based systems. The protocols are enabled by globally distributed, secure platforms that enables a ledger or database where value could be stored and exchanged without intermediaries.
Blockchains are secure by design and an example of a distributed computing system with high byzantine fault tolerance. Decentralised consensus can therefore be achieved with a blockchain. This makes blockchains suitable for the recording of events, title, medical records and other records management activities, identity management, transaction processing and proving provenance.This offers the potential of mass disintermediation and vast repercussions for how global trade is conducted. – Wikipedia
Many large financial institutions, banks and insurance companies are experimenting with distributed ledger technology as a means of digitally tracking the ownership of assets. The goal is to design blockchain enabled systems that can cut costs and lower the risk of fraud. For instance, a collective of roughly 70 global banks and financial institutions joined to form the R3 blockchain consortium, and announced plans to develop distributed ledger technology, and release the open-source Corda platform (link).
The Blockchain Building blocks
The blockchain paradigm was originally designed as a digital financial ledger, and has been extended to a generalized framework for implementing decentralized trust-based systems. The underlying techniques are attributable to a whitepaper (link) by an unknown person or group, Satoshi Nakamoto who described a crypto-currency (bitcoin) and the means to digitally send payments between two willing entities without the need for a third-party financial institution. Transactions were recorded on the blockchain ledger using a digital signature. To ensure trust, participants on the network ran algorithms to verify the digital signatures before adding transactions to the blockchain.
Blockchain’s main components include a network of computers, a network protocol, a consensus mechanism and encryption and cryptographic tools:
- A blockchain’s network involves a group of known computers nodes and entities that agree to participate in the network. Each node in the network will have a copy of the entire ledger, and will work with other nodes to ensure the ledger’s consistency. Distributing the ledgers across the nodes in the network ensures fault tolerance. This way, even if a single node or a few nodes go down, the ‘chain’ is not lost.
- The network protocol governs how the nodes in the network communicate with one another.
- Consensus mechanisms are algorithms with a set of rules that nodes in the network use to verify each transaction and ensure the consistency of the state of the blockchain. Every request for addition to the chain is validated by the consensus mechanisms that determine whether a ‘block’ of validated operations should be added to the network’s shared ledger (chain), or rejected. At the time of addition of a new block to the ledger, timestamps and ‘hashing’ of previous blocks may be added to ensure a consistent and immutable record of all previous blocks.
- Encryption and cryptographic tools ensure identification, validation and non-repudiation of identities and operations on the ledger. Various encryption techniques including ‘public-key cryptography’ could be used.
Key attributes of a blockchain based solution include:
- Decentralisation – The Blockchain design removes a ‘single point of failure’ by decentralizing the trust and consensus mechanism across user’s ledgers
- Immutability – The records in a chain are permanent as long as the participants who carry out the chain’s consensus mechanism continue to maintain the network. This is because each block in the distributed ledger’s chain refers back to the previous blocks,
- Removal of a middle-man- Unlike most other payment platforms, there is no ‘central’ authority in a blockchain system. Blockchains can be borderless, and distance-neutral.
- Trust and Security – The elements in a chain are designed to be cryptographically secure. With the inherent security, participants using the agreed consensus mechanism trust the overall integrity of the system
Blockchain in the corporate world: Beyond Case studies
Most major business and technology conferences in 2017 had sessions on Blockchain across industries. A small sampling of articles include
- Global Supply Chains Are About to Get Better, Thanks to Blockchain (Harvard Business Review)-
- Provenance, a UK-based startup, tells prospective clients they can use its blockchain-based technology to “share your product’s journey and your business impact on environment and society.”
- Walmart is working with IBM and Tsinghua University, in Beijing, to follow the movement of pork in China with a blockchain.
- Mining giant BHP Billiton is using the technology to track mineral analysis done by outside vendors.
- Blockchain Real Estate Startup Bitmark Raises $1.7 Million – Taiwan blockchain startup Bitmark has raised $1.7m in a new seed funding round. Bitmark is among a growing body of startups seeking to leverage the technology in order to reinforce property rights in favor of their creators.
- Irish blockchain start-up FXCH aims to overhaul foreign exchange – Dublin-based start-up Foreign Exchange Clearing House (FXCH) is turning to crowdfunding to raise €8.5m, to expand its operation that uses blockchain and overhaul how currency is exchanged between financial institutions.
- A Case Study for Blockchain in Healthcare: Researchers partnered with Beth Israel Deaconess Medical Center (Harvard Medical School Teaching Hospital) to design a prototype for electronic health records. They are evaluating MedRec’s ability to smoothly intake and parse a standard clinical document, link ourDatabase Gatekeeper utility to the relevant Beth Israel endpoints
Behind the hype: Are Corporations hesitant to use Blockchain ?
The technologies behind blockchain are relatively well understood. However, adoption of blockchain solutions in the corporate world continues to lag. In a recent article in Forbes, Rajah Chaudhry writes
Blockchain (or Distributed Ledger) hype amongst technology bloggers, startups and banks is masking an awkward truth. Some of the most promising blockchain applications are designed with corporate users in mind. But corporate leaders remain skeptical at best — especially in Asia. And to reach the potential of blockchain, providers, including banks and start-ups, need to win over corporate users.
A few reasons for the lack of widespread adoption of blockchain include:
The lack of critical mass of users from an industry or business vertical. Crypto currencies like Bitcoin, have become extremely popular because of a vibrant ecosystem of buyers and sellers that actively engage in the platform. The consumer driven hype has brought hundreds of thousands of users into the ecosystem. Blockchain solutions for industry specific requirements like supply-chain or real-estate transactions will have to be designed to complement existing B2B exchanges and networks.
Transaction and Platform costs. Consumers have come to expect free or low-cost of digital transactions, but the same doesn’t apply to B2B transaction. Businesses with high volume of transactions, secure and scale-able requirements and must design support and exception handling for their users. All this adds to the cost of the system that businesses need to factor in. In many cases, the incremental value of blockchain, when supplementing existing B2B interchanges and networks is unclear.
Legal and regulatory constraints need to be addressed. The promise of Blockchain’s smart contracts enabled by electronic signatures need the force of law behind them. This is a bigger challenge for multinationals and transnational organizations that operate in multiple geographies across continents. While the building blocks like eSignatures and cryptography are well understood, the implications of integrating these into blockchain transactions that are legally binding and enforceable are unclear and need to be addressed.
Global and industry specific standards – In the crypto currency world, Bitcoin is the defacto leader though others like Ethereum, Ripple, Litecoin and others are also popular. Each may have a unique protocol, consensus mechanisms, algorithms and validation techniques for users of the platform. Similarly, platforms for industry verticals like transmission of medical records need to define and publish their protocols that have to be agreed by others in the industry.
Technologies that underpin blockchain continue to mature, and there is a wider understanding of the basic design. As platforms for business verticals and industries begin to emerge, first-mover organizations will have an opportunity to define the standards.
Links and References
- The Blockchain Is Bigger Than Any Bubble – Bloomberg
- The Blockchain: What It Is and Why It Matters – Brookings Institute
- Blockchain.com – Leading software platform for digital assets. Offering the largest production block chain platform in the world, we are using new technology to build a radically better financial system.
- Decision time is here for blockchain, but are enterprises ready? Blockchain may help deliver the open transactions and innovation we’ve long been promised. But there may be plenty of friction getting there.
Edited and compiled by: Mohan K | Reproduction with permission only | Contact myDigitalStartup.net