Blockchain

Blockchain is most often associated with cryptocurrencies such as Bitcoin and Ethereum (plus many more) but is it not one-and-the-same; it is the underpinning platform that allows these cryptocurrencies to function, but it is capable of far more than that.

Most of the commercial, enterprise or global IT systems we regularly use are centralized, in that they are fully controlled and administered by the entity which owns them; this almost always includes insistence on security measures such as mandatory user identification of one form or another.  These systems may also be centralized physically, with the computers running those systems hosted in only one location or with only partial distribution, i.e. a few geographically disperse hosting locations (e.g. data centres).

In contrast, one of the original premises of blockchain is to be a fully decentralized system; on a public (also known as ‘permissionless’) blockchain, there is no central point of control.  All users connect anonymously as peers, creating what is known as a ‘trustless’ system as personal knowledge about the other participants is not required for the system to function (i.e. you do not need to trust them explicitly).  Commonly, public blockchains also execute across all computers active in that blockchain network, with every connected computer being aware of every transaction and the storage of vital information for the network occurring on each one.  This makes public blockchains globally distributed systems with incredible resilience.

So where is this revolution this technology can bring? It exists in trust.

But isn’t a public blockchain ‘trustless’? In terms of the individual users of the system, yes; however, the key technological concept of Blockchain is to make the system itself the arbiter of trust. An individual user need not know or trust another user to complete a transaction, only the Blockchain system itself.

Every node sees every transaction. Erroneous or invalid transactions will be detected and will not be permitted to occur. Furthermore, specialized code within the system works constantly to ensure the majority of the participants are honest (and therefore trustworthy), by incentivising honest behaviours; this specialized code is known as the ‘consensus mechanism’ of the system.

There are many different blockchain-based technologies, which utilise a variety of different consensus mechanisms. However, they are all primarily designed to overcome a particular issue; the ‘Byzantine General’s Problem’. This concept is known as an ‘agreement problem’, initially theorized by Leslie Lamport, Robert Shostak and Marshall Pease in 1982. In short, it deals with how multiple parties can reach a common agreement in the absence of direct contact, whilst avoiding a situation where partial disagreement occurs either accidentally or maliciously.

In blockchain systems, particularly public systems which are decentralized and non-administered in the traditional IT sense, this is vital in ensuring that data to be committed to the chain can be trusted as another feature of Blockchain is the immutability of data. Once data is written to a Blockchain, it cannot realistically be deleted or amended; data can only be added, and any valid transactions made in error can only be corrected if an exact reversal of that transaction can be completed.

Why is a data on a blockchain stored in this way?

With public blockchains, it is particularly important to ensure that data cannot easily be altered as every user or computer who accesses that Blockchain network effectively has access to all the data within it.  In this scenario, any data not protected in such a robust fashion could easily be corrupted or altered maliciously.

This protection is provided using cryptography, a mathematically-based transformation of data which has been used for decades to secure information either directly (by encrypting files) or indirectly (by creating encrypted ‘tunnels’ through which data can travel over public networks such as the Internet).  Within blockchain, a specific sub-component of cryptography is used, namely ‘hashing’.

Unlike encryption, which uses paired pieces of data called ‘keys’ (public and private keys) to encrypt data and is entirely reversible, hashing is a one-way process.  Once data is hashed, it cannot be returned to its original form. However, the hashing algorithms which perform the hashing function are incredibly sensitive to changes in source data.  So much so, that even changing a single letter within a piece of data, however large or small, will totally change the output hash.

It is through this mechanism that data immutability occurs within a blockchain.  Each block committed to the chain has some of its data hashed as part of the confirmation process.  This hashed output is then embedded within the subsequent block in the chain, intrinsically linking the two blocks together with highly change-sensitive data.  This is repeated for every block within the chain, from the first block to the latest.

Any attempt to retrospectively change data within a block will create a different hash for that block; it will not match the subsequent block and therefore will not be a valid member of the chain.  Any attacker who wished that revised data and its host block to be considered valid would need to recreate every subsequent block in an effectively new and parallel chain, all the way to the equivalent of the most recent block on the original and beyond, faster than the rest of the network could confirm blocks on the original chain.  On a global, public blockchain with potentially millions of connected computers, this is an incredibly difficult feat for even the most determined attacker!

Having publicly visible data, albeit mostly obfuscated via hashing, may be acceptable for users of a peer-to-peer money system such as Bitcoin, but such visibility would generally be highly unpalatable for most businesses or organisation.  What alternative exists for these potential adopters?

The answer is private blockchains, also known as permissioned blockchains.  These variants do offer a level of centralized control, where administrators can decide who can do and see what within the blockchain system.  Whilst this is a step away from the original ethos of blockchain in its Bitcoin origins, it is a step towards the security and control almost exclusively required for most business use cases.  Hybrid blockchains also exist, which allow both public and private blockchain operations to occur and give businesses the flexibility to exploit blockchain technology even further.

Certain blockchain systems also have the ability to run ‘smart contracts’, programs that are written specifically for their host blockchain which are programmed to automate transactions based on a set of defined criteria.

It was cited earlier in this text that trust was the revolution delivered by blockchain technology.  How does this manifest in the real world?

One prime example is the use of blockchain for disintermediation; the removal of intermediary parties, be they organisations or multiple legacy IT systems, to directly connect all required participants via a common medium.

Blockchain can simplify end-to-end process, it can simplify and expedite transactions, it can help to automate processes based on particular conditions, it can increase transparency throughout a value chain to hitherto unseen levels…..and this technology is still very much in its youth.  In the coming years, enhancements and improvements in DLTs and blockchain technology are set to deliver a paradigm shift in value exchange.

With a promising future and a wealth of information about DLTs and blockchain available in the public domain, how should a business looking to adopt such technology start along that path?  As with almost every other complex IT system, it is not simply a case of ‘taking it out of the box’. There are many aspects to consider and many specialist disciplines required to achieve an optimal outcome.