What is a Blockchain?

A blockchain is essentially a global database that has four important characteristics

  • The data base is public i.e. it is not owned by anybody.
  • It is distributed so the information is not stored centrally but is held on many computers around the world.
  • Synchronised so to keeping all the transactions on the data base up to date.
  • Cryptography ensures all the data is secure and therefore can be trusted this allows one to do transactions with people you may not know as it is tamper and hacker proof.

How does blockchain work?

Blockchains store a data set’s "digital fingerprint" within a block. These digital fingerprints are added in chronological order and cannot be altered at a later time. Participants in the network then help to verify the data following a set of rules as the data itself is cryptographically held.

These participants are independent, are distributed around the world so not centralised in one location or by one organisation. Each block of data is mathematically linked together to form a chain of blocks (hence a Blockchain) and data on the block represents a consensus of the history of events that has occurred. The data on the Blockchain is publicly available for verification by any 3rd party.

Why was it established ?

Initially Blockchain was used to record the transactions of a digital currency called Bitcoins which in 2008 was launched by someone call Satoshi Nakamoto. In the wake of the financial crash, wanted to have a way to enable a peer to peer version of electronic cash without the need for financial institutions like banks or exchanges.

What can it be used for?

Blockchain can be used to create and store information, which then allows people any where in the world at any time, to inspect the information, look at the data to verify a transaction and or to use the information knowing that it is accurate and correct. While many financial services organisations are adopting Blockchain, it can be used by almost any organisation:

  • Governments for Land registry or voting,
  • Non profit operators to track where money has been spent,
  • Logistics firms to monitor where in the world cargos are at any one time,
  • Hospitals to hold data on patients and monitor what care or drugs have been administered,
  • Pharmaceutical companies to monitor a person’s vital life functions while trailing a new drug i.e. pulse, blood pressure, sugar levels etc to help an individual monitor his/her health in real time.

Some examples of firms that have been established using Blockchain are:

  • Lykke gives you a wallet to allow you to use Bits coins to buy an sell goods.
  • LaZooz  which challenges Uber by putting drivers in direct contact with people looking for a lift.
  • Bazzar puts sellers in direct in contact with buyers like Ebay, but without the fees involved.
  • Ujo Music puts musicians in direct contact with their fans so they can be paid direct and not have to go through publishers and record companies, thus threatening Spotify and iTunes.
  • Blockstack which is a company enabling a secure identity which you can use as a personal ID for Facebook, Twitter, Amazon, etc.

Why is it important?

Blockchain is a global data base of information that is very secure. This enables peer to peer transactions without the need for a third party, thereby significantly reducing costs and creating an online real-time transaction history. In theory an organisation would know immediately what it has bought and sold. For example, it could be possible produce a daily Profit and Loss statement, along with a balance sheet, stock check, debtors and creditors lists etc at no additional cost. Since a record of every transaction is kept on the Blockchain, it creates a much more open transparent record, reducing the chance of fraud and removing the need to have a third party to verify and check the information.

Blockchain could be a really useful tool for those organisation which need to check people's identities in transactions i.e. how can we be certain you are who you say you are e.g. in the field of money laundering or when buying or selling land, property, shares, cars etc.

Matters to consider when looking at Blockchain

  1. Blockchain can be one of two things: public and private.  Both versions have the data (blocks of information) held in a distributed fashion i.e. not on one computer, and are secure as the data is cryptographically checked by different computers to ensure the data has not been tampered with. However, a private Blockchain is usually held behind a firewall, so limiting the computers that carry out the verification of the data. Usually a private Blockchain is only used by the employees and IT department of the firm that runs and owns the private Blockchain.
  2. Are you looking at Blockchain to support your existing business or are you looking to use it as a way to reduce costs? Blockchain can disrupt a market and give you the ability to create new businesses and services. The larger organisations are mainly focused on using Blockchain to support their existing business, as opposed to using Blockchain to radically alter the way they transact business with their customers. On the other hand, start-up business are looking to find new ways to gain market share from incumbent players in a chosen market.
  3. In order to get wider adoption of Blockchain, we need to focus less on how the Blockchain technically works, but more in terms of how it can be utilised. In the same way most people, do not understand how the world wide web operates, but numerous Apps have been developed as how to use it. So with Blockchain we need to think about how it will create a global trusted data base, allowing new and existing firms to do business more efficiently and this lowering transaction and friction costs. We potentially will need far less third parties, such as banks, brokers and middlemen, in order for people and firms to do business satisfactorily with each other in a secure trusted environment.

Challenges facing Blockchain

One of the issues Blockchain faces is due to its historical links with Bit coins, on account of the initial users of Bit coins being considered by some some to be “shady” i.e. organisations that used the dark web, money launderers, drugs and gun dealers.Therefore, Blockchain’s reputationin some eyes has been tarnished.

A bigger challenges is,that since Blockchain has the ability to cross legal borders, there is very little consensus in terms of the regulation or agreement on standards etc. As a result of Blockchain removing the need for central banks and their parties ie stock exchanges, governments are nervous about this technology and how to regulate, it despite seeing the clear advantages it brings.

Depending on how the Blockchain is established the speed at which information is processed can be an issue but there are a number of initiatives being worked on that will address this challenge.

By teamblockchain On Thursday, February 16 th, 2017 · no Comments · In Blockchain basics