What is Blockchain
01 / 09 / 2020
What is Blockchain? That is the question that 4 colleagues from Worldline UK pondered and are answering in their joint article.
So there we were in the depths of COVID-19 lockdown - 4 colleagues from Worldline UK, having a virtual beer and a chat about what was to become of us when the topic of conversation turned to the future for businesses and how we needed to think outside of the box to face up to the challenges of the new 'normal'.
Now what comes next will be evident once we introduce our band of 4:
David 'the Dreamer' Karney – Officially known as the Head of Product Discovery & Creation UK&I
Lee 'the Realist' Sunter – Officially known as the Head of Production Services & Technical Director UK&I
Ethan 'the Kid' Whitmore – Officially known as Digital Marketing Executive
Amandeep Sharma 'the 'Conductor' – Officially known as Blockchain UK Pivot Lead & Head of RDG Settlements
Ok so have you guessed it yet. We are talking about Blockchain and coming up with a grown-up view on how and when it can help us, below is a summary of our discussion of which there will be more to follow.
What is Blockchain?
Blockchain is a shared, immutable ledger (a record that cannot be changed) that can record transactions between different parties and industries, through a collection of shared, confirmed, encrypted data spread across multiple geographic locations; thus, it can provide enhanced transparency with reducing transaction costs through the removal of an intermediary.
So, the critical points of blockchain’s purpose/value proposition are:
- Remove an intermediary
- Immutable ledger
- Encrypted data
- Multiple locations (meaning both geographical, social and industries)
Blockchain updates are enabled through various consensus protocols that are used to validate the addition of a new block with other participants before it can be added to the chain (hence the name Blockchain - a chain of blocks). This prevents fraudulent updates without requiring a central authority - this is where the removal of an intermediary comes from. Additionally, the Blockchain can be programmed with "smart contracts", which are a set of conditions recorded on the Blockchain, which automatically trigger when the needs are met based upon a transaction. A typical example could be used to automate insurance-claim pay-outs.
It is NOT Crypto!
Cryptocurrency is a digital currency that uses cryptographic encryption (hence the name) techniques to convert data into a string of letters and numbers. This string is called a hash and is used to validate and join new blocks to the existing Blockchain. This process is used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Cryptocurrencies achieve this by using a decentralised control based on blockchain technology. Bitcoin was the first cryptocurrency followed by thousands of altcoins (variants or other cryptocurrencies).
The common misconception people have is that Blockchain is Crypto and they are the same thing. Blockchain is the system in which Crypto is run on. So, Crypto is Facebook and Blockchain is the Internet. Blockchain is just the framework and system that Crypto works on.
So that leads onto the next thing. Not every person needs to understand how the blockchain system works; all they need is it to work so they can use the method that runs on it. Just like someone who manages a supply chain system that requires it is the ability to put in data and get the correct data out. They do not need to understand the mechanics of what goes on behind the scenes. Just like the everyday user of Facebook doesn't need to know how the internet works to use Facebook. All they require is for it to work.
What assets to store on the Blockchain?
Typically, there are two types.
- Digital is typical and most logical, these are the digitalised assets, which can be anything that can be stored and transmitted electronically that have ownership and usage rights associated with it, such examples are music, photos and equities etc. These are therefore digitally recorded (on a ledger) and transacted (ownership and usage rights transferred), either managed end to end on a blockchain system or integrated through application programming interfaces with existing (legacy) systems.
- Physical, in reality, you are not tracking the item – this is a crucial point to note; you're following the information it produces, such as location, temperature, owner etc. So, connecting and securing physical goods to a blockchain requires enabling technologies like IoT and biometric. This connection can be vulnerable so even though the Blockchain is immutable, the originating data items may be incorrect/tampered with – (to paraphrase the adage) the trust in the ledger is only as good as its data! - For example, "certifying the chain of custody of commodities like grain or milk requires a tagging system that could increase the assurance on the asset but cannot guarantee absolute provenance".
At Worldline in association with Bureau Veritas, we recently help build a service to track food production across the world – You can watch this video for more information on this.
Issue of trust and verifiable information
All of the above points are aimed at addressing the critical challenge related to trust, i.e. encrypted single source of truth that's not susceptible to retrospective change, that is available to all (many) to remove the need for a single intermediary.
Trusting of information: Today you could argue there is too much information (or at least data) – anyone can post anything which can vary from a balanced researched article to an opinion piece without any real value or depth into and beyond the author's opinions; as such a trusted immutable source becomes much more valuable, and this is where blockchains could be very valuable, as this technology can provide secure access to practical, trusted information (captured assets) that we rely upon. Blockchain can bring transparency, security and efficiency to current processes and information sharing, as well as enabling potential new business models and ecosystems.
However, a word of caution as with most things, the technology/mechanism is only as good as the data that is stored within the chain. Therefore, there needs to be trust within the sources of the information that is being placed on the Blockchain – this is the crucial point for me as we are shifting the 'risk/concern in trust' further along with the process flow, albeit closer to the source of information.
So, after that little taster, our band of four decided they needed further liquid refreshment before discussing how Blockchain differs from a database – arguably it's the closest comparable solution and what the key challenges are for Blockchain usage. So, join us to find out more, look out for our subsequent blog on "…and how is this different from what we have today?"