What is Blockchain Technology and How is it Changing the Way We Do Business?

1. Introduction & Definition

A blockchain serves as a digital historical record.? More specifically, an open blockchain is a special kind of database, a distributed ledger, whereby its data is collected, verified and synchronized by multiple sources connected to its network at different locations.? This diversity of collaboration gives it a high level of security and a sense of democracy.

The authors of the United Nation Economic and Social Council’s report on blockchain used fungi as a metaphor to illustrate the way the technology works.? Blockchain does resemble fungi in many ways:? they both serve multiple purposes for “vast underground networks…[without] a single point of authority…[they] work to balance out the environment around them…[they] allow for the exchange of information…[and they] work together to maintain information securely.”? https://atrium.network/guide (UN Economic and Social Council)

Each “block” of verified data on the ledger is finite.? Each new finite “block” of verified data that is created references an older block of verified data and the blocks are chained together in chronological order.? Since the data is harder to corrupt, accessible to the public and is checked by multiple sources, blockchain is a fertile ground for trust to grow.

According to the United Nations’ Economic and Social Council’s report on blockchain, “All computers on the shared network retain an ongoing record of transactions as they occur, representing the entire blockchain. These computers are called nodes. Transactions submitted to a blockchain can only be added and previous data cannot be removed or modified.”? https://unctad.org/system/files/official-document/ecn162021d3_en.pdf

The key aspect of this technology is its irreversible timeline of data -- each block is essentially set in stone once enough participants on the network have verified it.? When a hack is attempted, all participants on the network are notified, but the hacker only has access to a part of the key in the chain, so it’s extremely difficult to hack successfully.??

The brilliance of open blockchain technology in Bitcoin’s case is the distributed system of global collaborators that has proven itself in the marketplace as a way of accurately keeping a ledger that has resisted hacking for ten years.? The only incidents of hacking have occurred when someone else besides the owner is holding it or someone who owns cryptocurrency has lost the mnemonic phrases that make up their security code.

For added security, blockchain is capable of requiring sophisticated methods of authenticating participants’ identity.? “Since all actions within a network are recorded, even if a cybersecurity attack is not prevented, it can still be tracked and traced to its origin or point of failure.”? Executive Summary: Potential Uses of Blockchain, By The U.S. Department of Defense (The Value Technology Foundation).

Another key aspect of blockchain technology is its ability to automate and digitize the rules of an agreement, known as a “smart contract.” ? A smart contract can take a specific action under predetermined conditions, much like automatic bill payments.??

A smart contract is a self-executing agreement that resides on the blockchain where the terms and conditions are specified by the code and the code is distributed through the network.? The majority of all smart contracts currently in existence are stored on the Ethereum blockchain.

Blockchain technology can be used to record all types of data.? By far its most common use has been to record financial transactions, but it has applications for a wide range of industries.

?Blockchains can be open or closed.? There are pros and cons to each of these types, depending on the purpose at hand.? The majority of blockchains are open; an open blockchain is a digital ledger that is available for public viewing and is maintained by a large number of decentralized computers that manage and cross-check the validity of each transaction.? In contrast, a private or closed blockchain is a digital ledger that is only accessible by certain parties on its network and is maintained by centralized computers with a single controlling entity.

1. Open, Distributed Blockchain vs Centralized Control or Closed Blockchain?

The most important characteristics of blockchain are:?

• Trust
• Immutability
• Security
• Need for Incentives & Punishments for Security & Immutability
• Smart Contracts
• Proof of Work

People in the corporate world are becoming obsessed with blockchain technology for many reasons, primarily because private or closed blockchains offer them many enticing advantages without the pesky checks & balances of public or open blockchains.??

A private, closed blockchain is basically a fancy database with a centralized entity in control of it, which means it can be corrupted -- it cannot provide the trust or maintain the immutability inherent to open, public blockchains.

Renowned expert in the field Andreas Antonopoulos says unless the blockchain is “open, public, borderless, censorship-resistant, neutral and permissionless,” it is “not truly secure.”

Antonopoulos goes on to say that in the case of Bitcoin, its “...incentives and punishments ensure that you can trust the platform as a neutral arbiter that is not controlled by any one [entity]”? Blockchain vs. Bullshit: Thoughts on the Future of Money [Classic Bitcoin & Open Blockchain Talk]

On a closed blockchain, after you’ve removed the incentives & punishments embedded in the system, you lose the trust that comes from all that collaboration.? When a single entity controls access to the blockchain, they can add or change it as they see fit, which removes the immutability factor that is so valuable to the technology.? Blockchain vs. Bullshit: Thoughts on the Future of Money [Classic Bitcoin & Open Blockchain Talk]

"Blockchain isn’t just about money."

As Antonopoulos says, “Blockchain isn’t just about money.”? https://youtu.be/i9nUMvpT2rM

Blockchain and Smart Contracts can be especially useful where trust is at the heart of the matter.? One of the most common applications is registering ownership of tangible or non-tangible assets like vehicles.? Blockchain for Beginners

One of the fundamental mechanisms behind Bitcoin and blockchain is ‘proof-of-work’ security.?

“One of the fundamental mechanisms behind Bitcoin and blockchain is ‘proof-of-work’ security.? [It] is a decentralized system by creating a competition in which those who provide for the network’s security are rewarded in Bitcoin.? [So] the currency is not just a vehicle for transferring value; it is the basis for the security mechanism, which allows you to have a blockchain operated and secured by anonymous participants whose only claim to provide security is the submission of energy.”?

The system and the immutable ledger are therefore managed by all the participants in the network without the need for a supervisor or managing entity.? The problem with blockchain projects operating by themselves, as on a closed blockchain, without a currency or some other incentive attached to feed the competition of participants, is the difficulty in building trust without punishment or incentive.? Without the reward system that prevents cheating, there will be cheating.? https://youtu.be/i9nUMvpT2rM

Even if you assign trusted institutions to oversee a blockchain where the institutions controlling it could access it, that means the “blockchain [is] being used to perpetuate the system of institutional trust that has failed to scale,” and you are opening the door to corruption.? https://youtu.be/i9nUMvpT2rM

“If you use a blockchain as a closed system, where trust is assigned to institutions, [when] those institutions are compromised or hacked...you have concentrated power in a system that is not secure.”

“If you use a blockchain as a closed system, where trust is assigned to institutions, [when] those institutions are compromised or hacked...you have concentrated power in a system that is not secure.”? True security “does not depend on any one individual or institution.”? https://youtu.be/i9nUMvpT2rM

All that security requires time and energy.? The blockchain’s collaborators need time and their computers need energy to verify the transactional data and thereby create the blocks on the chain.? If someone could build out a block on the chain really fast without any check & balance system, it wouldn’t be as secure as it is when lots of people are working together to verify the data.

“Bitcoin’s ‘proof of work’ system takes about ten minutes to add a new block to the blockchain. At that rate, it’s estimated that the blockchain network can only manage about seven transactions per second (TPS).? Legacy brand Visa, for context, can process 24,000 TPS.”? https://www.investopedia.com/terms/b/blockchain.asp.? Visa’s high rate of TPS is attractive, but businesses that use Visa are subject to charge-backs, delays in international transaction times, and of course fees, while businesses that use Bitcoin have no charge-backs, delays, or fees to middlemen.

Blockchain may not be the fastest way to manage transactions, but it offers many other advantages and is quickly emerging as a valuable tool in many ways the world over, including in developing nations for the registration of land titles and homeownership.? The use of blockchain makes it impossible for real estate to be stolen, for maintenance records to be falsified, and for the truth of what happened to be forgotten.? https://youtu.be/i9nUMvpT2rM

1. Applications

Blockchain technology started out as the foundation for cryptocurrency but it is rapidly expanding to any number of industries where a verifiable digital history is useful; “Annual spending on blockchain solutions will reach nearly $16B by 2023, according to CB Insights’ Market Sizing Tool. Industries from insurance to gaming to cannabis are seeing blockchain applications.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

Some of these industries with case examples are listed below.

? Financial Services:?

“Blockchain technology offers a secure and cheap way of sending payments that cuts down on the need for verification from third parties and beats processing times for traditional bank transfers;”?

R3, a Blockchain company for banks, “saw its technology used by Switzerland’s central bank for a pilot to settle large transactions between financial institutions using digital currencies;” and “The September 2017 Equifax hack exposed the credit information of nearly 150M Americans.? Alternative lending using blockchain technology offers a cheaper, more efficient, and more secure way of making personal loans to a broader pool of consumers.” https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Business Transactions:? “Blockchain company Ripple has partnered with over 300 customers, including financial institutions like Santander and Western Union, with the goal of improving the efficiency of cross-border payments.” https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Transaction Processing:? Blockchain technology offers a unique “frictionless movement of value...by leveraging the ledger of blockchain to record the transfer of an asset.”? https://atrium.network/guide

? Transportation:? “The Blockchain in Transport Alliance (BiTA) has been formed to develop industry standards and educate its network of members. It’s the largest commercial blockchain alliance in existence, and its nearly 500 members are developing the frameworks that will change the trucking and transport industries.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Infrastructure:? “As...power plants and transportation...become equipped with connected sensors...privacy and security risks [arise]. Companies like Xage are employing blockchain’s tamper-proof ledgers to secure data across industrial device networks.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Healthcare:? “Use of blockchain technology could allow hospitals, payers, and other parties in the healthcare value chain to share access to their networks without compromising data security or integrity and can make sure their provider directories are up to date.” https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Retail:? “Blockchain technology has the potential to transform e-commerce by lowering transaction costs and tightening transaction security.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Agriculture:? Walmart and Sam’s Club asked their suppliers of vegetables to join IBM’s Food Trust Network in 2018, where a blockchain system “is used to make it easier to quickly trace the origins of food — a key advantage in cases such as trying to trace the source of contaminated produce.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Education:? Using “blockchain solutions in education could streamline verification procedures, thereby reducing fraudulent claims of unearned educational credits.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Intellectual Property:? JAAK, a blockchain company in the UK, “is developing a platform that allows media owners to convert their repository of media, metadata, and rights into ‘smart content’ that can self-execute licensing transactions on the Ethereum blockchain.”??

https://www.cbinsights.com/research/industries-disrupted-blockchain/

“Tamper-resistant blockchains can provide a timestamp to indicate the exact recording time of an idea. This will solve any disputes regarding the origin of an idea. Blockchain also gives intellectual property owners the added advantage of protecting their IP assets [from] infringers, for example, patent trolls.” https://datascience.foundation/sciencewhitepaper/top-5-use-cases-and-platforms-of-blockchain-technology

? Real Estate:? “Real estate blockchain applications can help record, track, and transfer land titles, property deeds, liens, and more, and can help ensure that all documents are accurate and verifiable.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Licenses:? “A blockchain-based credential verification system for physicians [can] prove they’re licensed to operate in certain areas.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Supply Chain Management:? “Blockchains could be used to track parts in a supply chain and weed out those that are counterfeit. The tech also has major implications for automotive recalls, of which there were 13M in just the first half of 2020.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Maintenance Records:? The Blockchain company “GoDirect Trade...stores maintenance and manufacturing histories for each of its 25,000 parts in one location...avoiding the [cumbersome] manual and paperwork-heavy processes.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Hospitality:? Hotels often rely on independent contractors for essential services. “Blockchain technology can help cut out the middlemen, encouraging direct provider-to-consumer interaction and reducing costs.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Pharma:? “Using a blockchain ledger can create a more efficient system, opening the door for faster innovation, better-regulated production, and smarter medical data security.” https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Voting:? “Blockchain carries the potential to eliminate election fraud...maintain transparency in the process...reduc[e] the personnel needed...boost voter turnout...eliminate the need for recounts...as was tested in the November 2018 midterm elections in West Virginia.” https://www.investopedia.com/terms/b/blockchain.asp

? Law Enforcement:? “In police investigations, maintaining the integrity of the chain of evidence is paramount, so a distributed, hard-to-falsify record kept via blockchain could provide an added layer of security to the evidence-handling process.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Gift Cards & Loyalty Programs:? “With fewer middlemen needed to process the issuing of cards and sales transactions, the process of acquiring and using blockchain-reliant gift cards is more efficient and cost-effective.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Art and Music:? Blockchain-based technology non-fungible tokens (NFTs) give creators the power to own their creations.? The artist Beeple uses them “to create a unique signature for each piece of art he sells, enabling him to track each work, earn royalty payments, and avoid forgeries.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Identity Management:? “Instead of providing consent to many service providers, users can store their digital identity data in an encrypted digital hub. Individuals can control access to the hub and can also revoke access.”? https://datascience.foundation/sciencewhitepaper/top-5-use-cases-and-platforms-of-blockchain-technology

IBM’s blockchain system Verify Credentials “allows certain trusted organizations to issue credentials to users, who can then use the credentials to prove their identities to other organizations, enhancing personal privacy and streamlining the verification process.”? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Medical Transaction Records:? “Blockchain technology improves payment system efficiency, minimizes operating costs, and offers transparency.”? https://www.grandviewresearch.com/industry-analysis/blockchain-technology-market

? Auditing:? “Accountants work with a spread of documents — from tax forms to bank statements to spreadsheets — containing extensive personal or organizational information. Layering in blockchain technology could make it easier to keep track of this sensitive data as it is processed by accounting firms.”?? https://www.cbinsights.com/research/industries-disrupted-blockchain/

? Notary:? “Blockchain helps in demonstrating the presence of the record since the time it was made and alterations can likewise be recognized. Checking if a record has been adjusted or not should be possible by hashing the archive.”? https://datascience.foundation/sciencewhitepaper/top-5-use-cases-and-platforms-of-blockchain-technology

Other applications include:

? Proper Testing Methods

? Securing Applications

? Communication??

? Information Services

1. Conclusion

Think about it: once it’s recorded, it can’t be altered.? No one can erase an entry or edit any details. The information is permanently fixed for all to see.? Now where in today’s world can you see the value of a permanent, inalterable historical record, and how useful could an open, distributed blockchain become to your business?

“In an increasingly digitized economy and society, security and accountability in relation to data transactions are critical for creating trust and enabling breakthrough innovations in the digital world. In this regard, blockchain technology could be a game-changer, with the potential to revolutionize processes from finance to pharmaceutical industries”? The UN Economic and Social Council https://unctad.org/system/files/official-document/ecn162021d3_en.pdf

“As a buzzword on the tongue of every investor in the nation, blockchain stands to make business and government operations more accurate, efficient, secure, and cheap with fewer middlemen.”? https://www.investopedia.com/terms/b/blockchain.asp.? Clarity, accuracy, trust, efficiency, security, innovation, simplicity and reduced expense to boot?? Blockchain and business seem like a match made in heaven.?

A word of caution:? Don’t be seduced by the word “blockchain;” you really need to do your homework because not all blockchains use a viable or secure system as I described above.? Many moving pieces are required to make a blockchain work both effectively and securely.? It is important to distinguish between open and closed blockchains and to understand whether or not a blockchain is truly the best solution to an existing problem.?

Remember the fungi metaphor?? I bet that before long, blockchain is going to blow up like a mushroom, impacting us in ways we can’t yet imagine.? “As we prepare to head into the third decade of blockchain, it’s no longer a question of ‘if’ legacy companies will catch on to the technology—it's a question of ‘when.’”? https://www.investopedia.com/terms/b/blockchain.asp

For more on blockchain, watch this video Blockchain & Bitcoin is a Paradigm Shift in the World - with David Amerland & Martin Brossman https://youtu.be/YoNGJvI-_lI?

When you find yourself wanting to know more about Blockchain, smart contracts, cryptocurrency, or NFTs, check out my previous articles on LinkedIn.?

• Bitcoin, Energy and the Environment - Not what you have heard
• There’s More to Bitcoin & Cryptocurrency Than You’re Seeing In the Media
• What is a Non-Fungible Token (NFT)?

by Martin Brossman - Results Driven Success Coach, Speaker, and Author. Special thanks to contributions from Dana Gower, Noah Boswell, David Amerland, and Mary Alice Askew.

See our professional training on Bitcoin and Cryptocurrency with me and Dana Gower at https://martinbrossmanspeaks.com/bitcoin-cryptocurrencies-blockchain-nft-for-professionals/ or contact Colleen@MartinBrossman.com (919) 847-4757 schedule training or consulting.

Photo credit: Bitcoin Block Data by Matth?us Wander https://commons.wikimedia.org/wiki/File:Bitcoin_Block_Data.svg and Blockchain Illustration by Davidstankiewicz? https://commons.wikimedia.org/wiki/File:Blockchain_Illustration.jpg

#bitcoin #Blockchain #Cryptocurrency #MartinBrossman