Blockchains have become known as the platform for the virtual currency Bitcoin. They are also known as distributed ledgers. Their use is predicted to grow in the coming years, and they are even said to be the next internet. What is this about?
Verification without intermediaries
A blockchain is a decentralised database where the information of a transaction (such as an account transfer or an agreement) is recorded in a block that could also be called a folder or a ledger. The blocks are linked to form a chain.
When one ledger is closed, a cryptographic hash function creates a verification code which is recorded in the next block in the chain. The blockchain is copied to several computers. If one digit inside a block was changed on one computer, the verification code would also change, which would prove that the block is not the same as on other users’ computers.
The blockchain makes sure that recorded data remains unaltered and that all parties can trust the blockchain recordings without the need for verification by a third party (such as a bank). In practice, however, it is usually a third party that provides the blockchain platform needed.
Data recorded securely and permanently?
Any kind of data such as text, pictures, and documents can be recorded in blockchains. This means that, for instance, agreements can be recorded in a blockchain. Some idealists also consider blockchains a possibility for recording history in a form that cannot be altered afterwards. Usually history is written by winners – and the losers promote historical research.
The data is not, however, absolutely safe. The system is decentralised and based on the assumption that the chain is correct when over half of the CPU capacity running the system has verified it. This is why the system is susceptible to a so-called 51% attack. Whoever has the most resources available decides the contents of the blockchains in the end. In addition, criminals have been able to use the computing power of others through malware.
With blockchains we are facing the same race with attackers as with other technologies.
The finance sector as a trailblazer
Even though the blockchains may not fulfil the most idealistic hopes, a lot of potential can be seen in them. Especially financial institutions are interested in the new technology. The blockchain technology is believed to decrease costs in the finance sector and to be a faster and, despite its threats, more secure way of making electronic transactions than current systems. Britain is considering the possibility of monitoring the use of tax revenue with blockchain technology.
The competition between technologies has begun
International technology giants have smelled a goldmine, and there is now a lot of buzz around blockchains:
- The technology company R3 is leading a project where several globally significant banks have researched the possibilities of blockchain technology in the finance sector on the basis of concepts from different suppliers (Eris Industries, Ethereum, IBM, Intel and Chain). Banks familiar to Finns that have participated in this include OP, Nordea and Danske Bank. In time we will see whether the companies will be using their own dedicated blockchains or those based on computers in the public network.
- Microsoft together with ConsenSys provides companies in the financial sector with their own blockchain system based on the Ethereum system, compatible with their Azure cloud service. The idea is to provide companies with an easy and affordable way of testing the technology in practice.
- IBM has also published its own blockchain-as-a-service range.
- The Linux Foundation has established the Hyperledger Project, the aim of which is to develop a decentralised platform to offer building blocks for various uses and solutions of blockchains. The project members are an impressive group of leading companies related to the financial sector, IT technology, and the Internet of things, among others.
Will the benefits of blockchains materialise? One thing is certain: several renowned companies would not participate in developing blockchains unless they recognised the business benefits. On the commercial side, blockchains will be widely applied in the future, even if the wildest visions did not come true.
We will see on whose blockchain technologies the ecosystems of the future will prominently be based. Any guesses?
About the author
Jukka Keskinen is an IT management advisor who believes that in the future account transfers will happen in blockchains but the name of the currency will more often be Euro or Dollar than Bitcoin.