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What is Blockchain and Does it Matter?

If you are reading this article, it’s probably because you have heard the term Blockchain and are wanting to learn more about it. Perhaps you already know something about it and are interested in learning about more use cases and where it’s applicable. I want to separate the reality from the hype – which is no easy task.

Blockchain is Changing the World?

There is no shortage of people guaranteeing that Blockchain is an absolute revolution that will have a similar effect to the world like the internet did. Simply put, there are people guaranteeing that Blockchain has the ability to affect almost every part of our daily lives.

Blockchain will change the way we live. This is not going away.” 

Jamie Dimon, CEO of JPMorgan Chase

While Mr. Dimon is a believer in Blockchain he is not a believer in Bitcoin as evidenced by his statement where he said, “the cryptocurrency is a fraud”. So, while some disbelieve Bitcoin, most everyone agrees that the Blockchain technology is something special.

What is Blockchain?

First, let’s start with what Blockchain is and where it got its claim to fame to begin with. If you have ever heard the word Bitcoin, then you may have heard the word Blockchain in the same breath. After all, Blockchain was created to support Bitcoin. Blockchain is the technology that Bitcoin and other cryptocurrencies run on. A lot of people assume that Blockchain is only applicable to the cryptocurrency market – to make that assumption is selling Blockchain far short of what it actually is.

What many don't understand is Blockchain and Bitcoin are separate pieces of technology and industry. Bitcoin is the financial industry, and Blockchain is the technology that makes that particular part of the financial industry work. That same Blockchain technology can be used to run a myriad of other processes for almost any industry.

blockchain bitcoin illustration

Bitcoin is Powered by Blockchain

If you are not familiar, Bitcoin is essentially a shadow currency. There are, of course, strong believers, just as there are those who look at it as snake oil (as referenced earlier by Jamie Dimon). At this point, I would say there are more believers than non-believers, as almost every major bank and sizeable credit union has some type of internal, initial Bitcoin or cryptocurrency initiative starting up or planned for 2018. Who can blame them? They are in the money business, and while in the Bitcoin world it is easy to leave them out, they want to find a path in. At this point, you may be wondering – what are the benefits of using Blockchain for Bitcoin?

Use Case: Blockchain for Bitcoin

  • Unregulated
  • Anonymous Transactions
  • Decentralized Digital Currency
  • Fast, Cheap and Secure
  • Automated Governance
  • Global
  • Payments are Irreversible

When you look at the above list, there are a lot of words that may cause you to be wary of Bitcoin. The foundational uses of it don’t feel as trustworthy as we may be used to, especially when it comes to money. We would normally never send money to an individual or a company without complete disclosure and understanding of their identity. For some in the Bitcoin world, anonymity is prized over almost anything else, though not everything that happens is anonymous.

Bitcoin is not anonymous

Some effort is required to protect one’s privacy with Bitcoin. All Bitcoin transactions are stored publicly and permanently on the network, which means anyone can see the balance and transactions of any Bitcoin address. However, a person's identity can be associated with a Bitcoin address through other means. Once that occurs, it is possible to determine that person's transactions, backward and forward, through the Blockchain history.

Blockchain Defined

You should now have a decent handle on what Bitcoin is and that Blockchain is the technology that makes all of that happen. With that in mind, you may still be wondering what exactly Blockchain is.

Here is a typical Blockchain definition:

A Blockchain is a ledger of facts, replicated across several computers assembled in a peer-to-peer network. Facts can be anything from monetary transactions to content signatures. Members of the network are anonymous individuals called nodes. All communication inside the network takes advantage of cryptography to securely identify the sender and the receiver. When a node wants to add a fact to the ledger, a consensus forms in the network to determine where this fact should appear in the ledger; this consensus is called a block."
 

As typical with a lot of definitions, that probably didn’t clear things up too much. So, lets walk through how Blockchain works.

Blockchain uses a peer to peer (P2P) network to run. This type of set-up is not a new development by any means. This dates back to the days of Napster and a whole list of other P2P offerings, from Skype to BitTorrent.

P2P networks, like other distributed systems, have to solve a very difficult computer science problem – the resolution of conflicts, or reconciliation. Relational databases offer referential integrity, but there is no such thing in a distributed system. If two incompatible facts arrive at the same time, the system must have rules to determine which fact is considered valid.

Take, for instance, the double spend problem – Alice has $10, and she sends $10 to both Bob and Charlie. Who will have the $10 eventually? To answer this question, the best way is to order the facts. If two incompatible facts arrive in the network, the first one to be recorded wins.

blockchain path illustration

In a P2P network, two facts sent roughly at the same time may arrive in different orders in distant nodes. How can the entire network agree on the first fact? To guarantee integrity over a P2P network, you need a way to make everyone agree on the ordering of facts.

You need a consensus system.

Consensus algorithms for distributed systems are a very active research field. You may have heard of Paxos or Raft algorithms. The Blockchain implements another algorithm, the proof-of-work consensus, using blocks.

What is a Block?

The Blockchain is just as it sounds — a chain of multiple blocks. Each block that is added to the Blockchain has transaction data that is permanently recorded.

blockchain path-1
  1. A record of some or all recent transactions and their timestamps
  2. A reference to the block that came immediately before it, ensuring any tampering with a block is propagated throughout the entire Blockchain
  3. A nonce, which is an arbitrary number that may only be used once. It is similar in spirit to a nonce word, hence the name, and is often a random or pseudo-random number issued in an authentication protocol to ensure that old communications cannot be reused in replay attacks.

I continue my thinking on Blockchain and the revolution that may, or may not be happening in the enterprise in this follow up article, The Blockchain Revolution: Real Deal or Fad?


 


About the Author

Nick_Reddin-2Nick Reddin is the Executive Vice President of Sales for Technology Services leader V-Soft Consulting. Nick has over 25 years of experience in the employment services industry and specializes in change management and driving 

Nick is an expert on the changing world of work and a consultant to many companies in helping them prepare for coming changes. Nick is also a self-proclaimed expert barbecue smoker so be sure to ask him about his latest experiment. Connect with Nick or learn more on LinkedIn.operational efficiencies.

 

Topics: Technology, Blockchain

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