Blockchain is currently undergoing various adoption stages across organizations worldwide. According to the latest statistics, the consumer products & manufacturing industry is the fastest to adopt blockchain, with 29% of businesses deploying it and using it in production. Contrary to general belief, the financial services are not so easily convinced, as 49% of organizations are only experimenting with blockchain, creating proofs of concept before implementing it.
Is blockchain a winning hand for all industries? Is it just a mirage? Or is it too early to tell? This article explains how blockchain works, highlighting why the blockchain technology still needs time and understanding before it becomes a commonplace in all industries.
Blockchain has been around for 27 years
The concept of blockchain is older than most people think. Back in 1991 it was used for timestamping digital documents so that no one could backdate or tamper with them. Alas, it was not met with much enthusiasm, and the world soon forgot about it.
In 2009, however, Satoshi Nakamoto adapted this concept into groundbreaking cryptocurrency Bitcoin. Suddenly, people’s perception of trade/transaction changed, and the world started giving the blockchain technology the attention it deserves. After all, it’s rare that a disruptive technology with such high levels of security comes along.
What is striking about blockchain is not just the security it builds into transactions, it’s also the freedom and trust it creates for the parties involved. In a non-centralized encrypted form, the blockchain technology proves ownership, history and ability, removing the need for intermediaries who would normally vouch for these attributes. On top of that, blockchain enables fast, transparent and accurate transactions.
Blockchain lets sellers and buyers interact directly. There’s no need for intermediaries to vouch for them as having the right to sell or the ability to buy, because blockchain provides an incorruptible record of a clean transaction history.
People can store money, tokens, personal data (emails, photos, etc), assets of all kinds inside a blockchain and transfer them without having to worry about third-parties chipping in or estranging them. Think of supply chains, for instance. With blockchain, assets can be tracked starting with their origin all the way through the distribution network.
To understand how blockchain works, think of a it as a string of interconnected blocks of data. Basically, it’s a distributed ledger entirely open to anyone. Each block in the chain contains transaction-related data, the hash of the block itself and the hash of the previous block. The hash is a cryptographic key – the fingerprint of the block, if you want. It’s unique, and you can’t tamper with it.
There is no central unit to manage the blockchains, because the blocks are distributed across large peer-to-peer networks of independent computers that verify one another’s actions by consensus. If one database fails or one copy fails, the redundancy across those multiple computers/nodes will save the day.
Whenever someone joins the network, he/she gets a copy of the blockchain. Once someone creates a block of data, the hash of the block is automatically calculated and the block is sent to everyone on the distributed network. Each computer in that network verifies the block to make sure it hasn’t been tampered with. If everything checks out, each computer will add the new block to their blockchain. Imagine this network like a large database, where each member holds an identical copy of the database on their computer.
In order to read or write data in the blockchain, you need two hashes:
- the public hash/key, i.e. the address and the database where your information is stored;
- your private hash/key, i.e. your personal key – no one can read or mess with your data unless you provide them your private hash/key.
If anyone tries to change something inside a block, the hash of the block will automatically change, making the following block invalid. Since changing a single block makes all following blocks invalid, the entire network will know about it. Thus, the network becomes your circle of trust. The most famous public network is probably the Bitcoin blockchain, which has been around for almost a decade.
To find out more on how blockchains secure themselves, i.e. learn about proof-of-work, consensus and smart contracts, you might want to read this guide. Nonetheless, keep in mind that blockchain makes transactions unchangeable, consensus-driven, decentralized, secure, transparent and error-free.
Is blockchain coming of age?
In a viral TED Talk on the potential of blockchain, specialist Mike Schwartz praised “blockchain for enabling an economy between machines,” redefining our world just like the combustion engine, the telephone, the computer, the internet did – each at their own time.
The fact that industries are not yet jumping on the blockchain bandwagon, as shown in this recent report, has more to do with the big changes it creates than with the learning curve of the technological complexity. Because the truth is blockchain is forcing us to rewire our brain around major concepts – transactions, interactions, and money will no longer be the same. In fact, trade is undergoing the biggest change since the shift from barter to banknotes. And we get to experience a new level of freedom and trust due to the transparency it offers and the removal of the middlemen.
Maybe this explains why less than 11% of organizations from the public sector, financial services and the healthcare sector are implementing blockchain in their processes. On the other hand, Schwarz anticipates that it will take further research and a lot of trial and error to get there. And, because of the substantial value at risk, the trial-and-error process is getting scary.
Besides the time-consuming change of habits and mentalities blockchain requires, the technology is also facing a steep learning curve. According to Schwartz, current implementations of blockchain – Bitcoin and Ethereum, did not quite meet the performance and scaling requirements, whereas the computer science of consensus platforms is not yet fully understood.
To sum up, blockchain is slowly coming of age and we can’t haste it. Therefore, we need to adjust our high expectations and allow it to unfold and grow. In the meantime, we need to keep experimenting so that we can truly understand how it works and how businesses can make the most of it.
Want to learn more about blockchain?
Join the latest Future Horizons talk-show – Beyond the Blockchain Hype! On October 16, starting 6pm EET, QUALITANCE Chief Innovation Officer Mike Parsons and Soundfeed Chief Blockchain Officer and SupplyBlockchain CEO and founder Sebastian Cochinescu will deconstruct the blockchain hype and offer a pragmatic, easy to understand perspective on this complex technology.
* How blockchain builds trust and how to adjust high expectations
* The latest trends from San Francisco Blockchain Week
* How medical research, voting, the energy sector and creative industries can leverage blockchain