The business world runs on trust, but trust is hard to come by. A staggering amount of time and money is spent searching, validating, verifying, checking, auditing, certifying, and worrying — trust is an expensive proposition. Blockchains make trust easier and less expensive, which is why half a billion dollars was invested in block chain technology last year. Analysts expect that the block chain industry will be worth billions of dollars in just a few years.
Blockchains first came to prominence as the underlying protocol of the Bitcoin cryptocurrency. But blockchains aren’t limited to financial transactions and there are many types of blockchain, of which Bitcoin is just one example.
So what do blockchains have to do with trust? A blockchain can be thought of as a type of database or ledger. Information can be added to a blockchain and retrieved from it later. But no single individual has complete control over a blockchain.
To understand blockchains, you need to understand blocks, chains, and networks.
A block is a unit of information. Each records a set of transactions. Transactions are changes to the information stored in the “database”. The size of the blocks varies depending on the protocol, but every blockchain joins blocks together with — big surprise — chains.
It’s not a physical chain of course, but a digital chain. Every block has a hash of the previous block — a long number created by a mathematical function that uniquely represents the previous block. It’s impossible to change the previous block once a new block has been added because then the hash wouldn’t match.
The blockchain is a complete record of every transaction (change) that has been made, in the order in which they were made. Anyone with the blockchain can see what its state was at every point in time by rerunning the transactions stored in the blocks.
The entire blockchain is distributed to a network of nodes, each of which knows every transaction that has ever happened. In order to retroactively change the data on the blockchain, a large proportion of the nodes on the network would have to agree to it — something that’s unlikely to happen.
Hopefully, you can see why blockchains are so important: it’s easy to trust the information stored on a blockchain because it’s difficult to change and obvious when it has changed.
Let’s finish with a couple of practical applications. The Dubai Blockchain Strategy is a plan to introduce blockchain technology for all the city’s transactions, from the visa system to bill payments.
Dubai predicted that “blockchain technology would contribute savings of up to 114 MTons CO2 emissions from trip reductions, and redistribute up to 25.1 million hours of economic productivity in saved document processing time.”
Blockchain is already integrated into several enterprise products. Factom’s Harmony Suite uses blockchain technology as a document catalogue. The idea is to form a complete, trusted, and unalterable catalogue of a company’s documents. Businesses spend millions of dollars every year on document management, and Harmony “enables organizations to better coordinate compliance audits, interact with documents and data across multiple sources, deliver final documents faster and utilize resources more efficiently.”
These applications of blockchain technology might not seem as exciting or world-changing as Bitcoin, but the cost, efficiency, and security improvements could fundamentally change how we think about trust and verification in the enterprise.