Blockchain is starting to deliver on great expectations, but the story of this technology is still just beginning.
Is blockchain a digital miracle? Typing “What is Blockchain?” or “How Can I Use Blockchain?” into any search engine fills the screen with hype. Maybe it’s not quite a household word, but numerous individuals and companies see it as the future of IT security in an unsecured age. Many think it will emerge as an opportunity for Internet of Things (IoT) devices.
Blockchain is a decentralized network of digital records open to public verification. Each record—each block of data—is time-stamped to create a chronological record, is linked to others, and is encrypted, so as not to be subject to revision. In this way, the technology of a blockchain creates a secure, digital ledger.
To better understand blockchain, keep the following points in mind:
- Blockchain addresses issues of digital security by potentially creating a public record (or “block” of data) of any transaction that holds value.
- Each separate block of data is linked to others chronologically; hence the “chain” of data. The blockchain system creates a copy of the data across all participating “blocks.”
- Each separate block of data is encrypted, and immune to revision. Blockchain utilizes a write-only database used in accounting.
- Blockchain exists on a worldwide network of computers; this decentralization stops any one company from dominating the network and makes it harder for hackers to corrupt the information.
- Like instant messages, blockchain transactions are direct connections; its technology eliminates intermediaries, while offering the security and verification usually guaranteed by a middleman.
- There are a number of specific apps on blockchain that utilize its encryption techniques, linking, and verification features; blockchain technology has been applied to almost every form of digital record and transaction.
- The best known application of blockchain is a digital currency called Bitcoin. Bitcoin is designed to secure one-to-one financial transactions.
Growing Use of Blockchain
It is quite possible that in 2017 we will see an explosion in the use of blockchain. It is almost inevitable that big banks get into the Bitcoin act, since the technology is tailor-made for digital transactions. Ben Broadbent, former Goldman Sachs economist and deputy governor of the Bank of England (BoE), said in 2016 that a blockchain system would likely be popular with BoE customers, though it could create problems for the bank itself. He dismissed the idea that Bitcoin might replace pounds and Euros, but suggested that its structure might be replicated for existing currencies.
Tech companies too, are determined to see how it plays out. IBM and Microsoft have initiated blockchain features in their respective clouds for customers to use. Microsoft is developing the blockchain marketplace ecosystem with a program referred to as Microsoft Azure Blockchain as a Service (BaaS), based on the Bitcoin model—essentially an electronic payment system that utilizes cryptography to allow two parties to make direct transactions without the need of an intermediary.
The Microsoft process: when two parties perform a transaction, it is recorded and broadcast to a Bitcoin network. Each recipient block collects new transactions and time-stamps them. Each block works to establish a proof-of-work, essentially a measure to deny service attacks by requiring computer processing time from a service requester. When one block acquires a proof-of-work, it broadcasts the block to others, effectively decentralizing the data. That first block to acquire it is later rewarded for its writing and broadcasting. Block recipients only accept the block if all the transactions in it are valid. Once participants in the chain accept the data, they go on to creating the next block in the chain.
Meanwhile IBM has launched a blockchain initiative in the cloud with Dubai government agencies to facilitate trade finance and logistics for the import and re-export of goods. Dubai partnerships have thus far provided a good situation for developing a blockchain technological system. Amir Refaat, manager of IBM’s operations in the Middle East, said, “Dubai is at the forefront of adopting this transformative technology as government agencies and businesses realize the need to have a shared secured ledger that establishes accountability and transparency while streamlining business processes.”
However, James Wallis, IBM’s vice president for blockchain markets sees larger possibilities, holding that the value of such a large-scale project is in crafting the ability to network different nations and industries in pursuing a common goal. Once the Dubai trade finance and logistics models are complete, IBM will integrate Watson’s AI into its blockchain. When the partners begin to use their system worldwide, the IBM project may emerge as something unique.
IoT Opportunities in Blockchain
There are many who see decentralized blockchain technology as the next big thing for the IoT. The use of blockchain in recording transactions could provide a way to track the unique history of individual devices. The technology might also allow IoT devices to serve the same function as computers in a blockchain network, becoming independent agents that autonomously facilitate transactions.
Amanda Gutterman, CMO at Consensys Systems, a blockchain developer, maintains that IT firms such are partnering with clients to implement blockchain applications with the IoT. “A huge number of big technology and finance institutions [are] start[ing] to get involved in blockchain,” she says.
Some participants in the IoT industry including Cisco, Bosch and digital security company Gemalto, recently announced the development of protocols for blockchain; other vendors, however, are hesitant to embrace a new technology that might require adding another layer of data management process to their business models. A recently formed IoT industry consortium intends to work with a mix of Fortune 500 companies and startups in establishing a protocol layer to enable supply chain and logistics management applications.
Blockchain’s Uncertain Potential
It is not yet apparent whether blockchain will prove to be massively disruptive to financial services or a boon to companies concerned with transaction costs and security. Though a number of prominent organizations are buying into the blockchain movement, its ultimate result remains uncertain. The technology may help manufacturing and finance, transform the IoT device industry, even address seemingly impossible security concerns. Only by carefully staying abreast of business trends in blockchain technology will companies know and take advantage of such opportunities.