What is blockchain?
Most of the media attention and excitement has been received by cryptocurrencies such as Bitcoin to date, but keep your eye on blockchain-this new technology is poised to change IT in much the same way open-source software did a quarter-century ago.
Blockchain, which started to appear in 2016 and 2017 as a real-world tech alternative, is poised to alter IT in much the same way open-source software did a quarter of a century ago. And just as it took more than a decade for Linux to become a staple of modern application growth, it will probably take years for Blockchain to become a less expensive, more effective way of exchanging knowledge and data between open and private business networks.
Blockchain is a distributed ledger technology (DLT) built on a peer-to-peer (P2P) topology that enables data to be stored globally on thousands of servers, thus allowing everyone on the network to see the entries of anyone else in near real-time. That makes it hard for one user to gain control of the network or game.
However, blockchains have been hacked in widely publicized events over the past five years, typically through a cryptocurrency application such as bitcoin. Smaller blockchains have also been vulnerable to theft with fewer nodes (or computers), with would-be thieves taking control over most nodes.
Blockchain, however, holds the promise of transactional transparency for companies: the ability to build stable, real-time communication networks with partners around the world to support anything from supply chains to payment networks to real estate deals and the exchange of health data.
Recent excitement about this relatively new technology is real because DLT is, in essence, a new model for the exchange of information; software suppliers and businesses have not surprisingly raced to learn how to use distributed ledger technology (DLT) to save time and administrative costs. Many enterprises, ranging from financial technology (FinTech) and healthcare to mobile payments and global shipping, have either rolled out or are preparing to launch pilot initiatives and real-world ventures across a range of industries.
Therefore, while blockchain will not replace conventional corporate relational databases, it opens new doors for transactional data to be moved and processed within and outside multinational companies.
Blockchain has seen a rapid increase in adoption for application development and pilot tests in a variety of sectors, led largely by financial technology (fintech) investments, and will produce more than $10.6 billion in revenue by 2023, according to a study from ABI Research. It is estimated that much of that revenue figure will come from sales and services of software.
According to Karim Lakhani, a principal investigator of the Crowd Innovation Lab and NASA Tournament Lab at the Harvard Institute for Quantitative Social Science, blockchain adoption is expected to be steady as the improvements it brings gain momentum. “Conceptionally, this is TCP/IP applied to the world of business and transactions,” Lakhani said. TCP/IP was not as stable and scalable as it was in the ’70s and’ 80s. We now know that TCP/IP makes us all this new functionality on the network that we take for granted.
Last spring, a Gartner survey of CIOs reported that only 1 percent had blockchain deployed in production environments; according to Gartner Distinguished Analyst Avivah Litan, that figure has risen to 3.3 percent today.
Martha Bennett, a principal Forrester Research analyst, noted that every blockchain or “DLT” project is a long-term strategic effort, and “when the hoped-for miracles fail to materialize, disappointment is inevitable.”
“It’s not realistic to expect a solid cost model or definitive benefits statement because it’s simply too early for that,” Bennett said. “To assemble real evidence, we need to have several fully operationalized, scaled-out deployments running for at least a couple of years. And we’re simply not there yet.”
Blockchain is, first and foremost, a decentralized electronic ledger built on a P2P mechanism that can be freely exchanged between various users to produce an unchanged transaction record, each time-stamped and connected to the previous one. The information becomes another block in the chain each time a collection of transactions is added (hence, the name).
Blockchain can only be modified by consensus between system members, and it can never be erased until new data is entered. It is a technology of write-once, append-many, making it a verifiable and auditable record of each transaction.
While it has great potential, the implementation of blockchain technology is still early; CIOs and their business counterparts should expect delays in the introduction of the technology, including the real possibility of significant bugs in the blockchain software used. And it’s not the be-all solution to many engineering concerns, as some businesses have already found.
Organizations, universities, and start-ups of Blockchain standards have proposed new consensus protocols and methods for spreading the workload of computational and data storage to allow greater transactional throughput and overall scalability, a persistent blockchain issue. And the Hyperledger Project of the Linux Foundation has developed modular tools for creating blockchain collaboration networks.
While some industry groups are working towards standardizing blockchain software versions, there are also hundreds of startups working on distributed ledger technology versions of their own.
Each digital record or transaction is called a block in the electronic ledger. When a block is finished, a special safe code is generated that connects it to the next block.
Why did the blockchain get so much buzz? Bitcoin, in a phrase, is the wildly hyped cryptocurrency that facilitates encryption and without revealing the identities of individual bitcoin owners for payment transactions across an open network. When it was founded in 2009, it was the first-ever decentralized one. Other types of cryptocurrency or virtual money, such as Ether (based on the application framework for the Ethereum blockchain), have also gained considerable popularity and opened new cross-border monetary exchange venues. (Developer Vitalik Buterin, who was 19 at the time, launched Ethereum in 2013.)
First was the word bitcoin… Well, coined in 2008 when a paper about a “peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.” was written by Satoshi Nakamoto (likely a pseudonym for one or more developers).
Bitcoin, however, has been on a roller coaster ride for more than a year, with its value falling from a height of almost $20,000 to a little more than $3,500, primarily because it has no intrinsic value; its value is dependent solely on high demand and limited supply. Unlike fiat currencies or securities, the value of Bitcoin is not backed by any entity or government.
For cryptocurrencies, that will someday shift.
Governments have also opened up the production of stable coins or cryptocurrencies funded by a stable asset such as a bar of gold or conventional fiat currency. Other properties, such as vehicles, real estate, and even artwork, are also digitized using Blockchain.
Blockchain, or distributed technology for ledgers, is not a single technology. Instead, it is an architecture that allows transactions to be made by disparate users and then maintains an untouched, protected record of those transactions.
Difference Between Public and Private Blockchaines
Public blockchain ledgers can be autonomously controlled to share information between parties as a peer-to-peer network, combined with a distributed time-stamping server. For an administrator, there is no need. In effect, the administrator is the blockchain user.
The second type of blockchain, referred to as a private or approved blockchain, enables businesses to build and centrally manage their transactional networks that can be used with partners between or within companies.
Furthermore, blockchain networks can be used for “smart contracts,” or business automation scripts that are executed when certain contractual terms are met. For example, Walmart and IBM developed a blockchain-based supply chain to track produce from farm to table after a bad batch of lettuce resulted in consumers getting sick of e-coli. By September 2019, Walmart had requested its manufacturing suppliers to enter their data into the blockchain database. When on the blockchain, production can be monitored from point to point automatically via smart contracts, eliminating human interference and error.
Walmart and Sam’s Club are telling suppliers to get their commodity data into the system after piloting a blockchain-based supply chain monitoring system, so they can start tracking produce from farm to shop. The time-limit: September 2019.
A blockchain-based supply chain has also been introduced by De Beers, which controls about 35 percent of the world’s diamond production, to track diamonds for authenticity and to help ensure they do not come from war-torn regions where miners are exploited.
To approve the transfer of properties, such as real estate, smart contracts may also be used. After requirements between buyers, sellers, and their financial institutions have been met, sales of property can be confirmed on DLT. This year, for example, New York-based ShelterZoom is launching a mobile real estate application that allows real estate agents and buyers to see all deals and acceptances online in real-time. It will also allow access, via the Ethereum-based encrypted blockchain ledger, to property titles, mortgages, legal and home inspection records.
At all stages of the global supply chain, from the mine to the dealer, the De Beers TrustChain blockchain network will track and authenticate diamonds, precious metals, and jewelry.
Is Blockchain Secure
According to Alex Tapscott, CEO and creator of Northwest Passage Projects, a venture capital company that invests in blockchain technology businesses, while no system is “unhackable,” the basic topology of blockchain is the safest today.
“To move anything of value over any kind of blockchain, the network [of nodes] must first agree that that transaction is valid, which means no single entity can go in and say one way or the other whether or not a transaction happened,” Tapscott said. You wouldn’t just have to hack one machine like a bank to hack it, you would have to hack every single device on that network that battles against you doing that.
“So again, [it’s] not un-hackable, but significantly better than anything we’ve come up with today,” So again, [it’s] not un-hackable, but much better than anything we’ve come up with today.
Because of the number of computers involved, Tapscott said, the computational resources required for most blockchains are immense. For example, the bitcoin blockchain harnesses between 10 and 100 times as much computing power as all serving farms put together by Google.
Blockchain faces obstacles and barriers to acceptance, as with any new technology.
But it can’t always avoid hacks, even on a larger scale.
A recent “51 percent attack” on the exchange of token Ethereum Classic shows that even blockchain is not impermeable to gaming. A 51 percent attack refers to a bad actor in a cryptocurrency mining pool who takes control of most CPUs. Such attacks are generally restricted to smaller blockchains with fewer nodes because they are more vulnerable to control by a single individual centered on a Pro.
According to Bruce Schneier, a cryptographer and security expert, even though blockchain networks are stable, the applications running atop them might not be as healthy.
That’s not how this kind of thing is going to break up. Because of some program insecurity, it’ll get broken,’ Schneier said.
Scalablity of Blockchain’s Over Time
Scalability or its ability to complete transactions in near real-time, such as clearing payments through credit cards, is one of the major problems faced by blockchain.
Cryptocurrencies such as bitcoin and Ethereum’s Ether have already defined scalability as a challenge. If a distributed ledger is to achieve financial technology (FinTech) acceptance and compete hundreds of times faster with payment networks, it must find a way to improve scalability and throughput and fix latency issues.
Sharding is one of the common approaches to improve transactional throughput being explored by developers. Simply defined, sharding is a way of partitioning to spread the computational and storage workload around a P2P network so that each node is not responsible for handling the transactional load of the entire network. Instead, each node only retains or retains information relevant to its partition
The data stored in a shard can still be exchanged by other nodes, which makes the ledger decentralized and technically secure since all ledger entries can still be seen by everyone; they simply do not process and store all information, for example, such as account balances and contract code.
Every authenticating machine or node records all the data on the electronic ledger in today’s blockchains and is part of the consensus process. The majority of participating nodes in large blockchains such as bitcoin must authenticate new transactions and record the information if they are to be added to the ledger; that makes it slow and difficult to complete each transaction.
Because of this, bitcoin, which is based on a PoW, can only process 3.3 to 7 transactions per second and can take 10 minutes to finalize a single transaction.
Another famous blockchain ledger and cryptocurrency, Ethereum, can only process 12 to 30 transactions per second.
By contrast, Visa’s VisaNet handles 1,700 transactions per second on average.