By Cybera’s Data Science Team
Key Blockchain Terms
Smart contract: A programming technology that validates a transaction automatically. It can authorize or decline a transaction, based on whether it meets pre-existing conditions. The smart contract could be compared to a banking program that immediately declines your debit card payment when you have insufficient funds.
Open ledger: The ledger used in blockchain to keep a record of the transactions. It is accessible to all who have permission. You have the option of saving this record on your computer.
Distributed ledger: A decentralized ledger. A centralized ledger is like your school records: anybody who needs to verify your credentials has to contact the school to get your transcripts and results. Decentralised ledgers, on the other hand, are made up of independent computers that have access to the same data. The output is validated by every computer on the network.
Cryptocurrencies: Digital currencies such as bitcoin. Blockchain enables the movement of cryptocurrencies.
Block: The files used to permanently record transaction data.
Miners: Online processors who compete with each other to validate a new transaction. Miners preserve the distribution of power (i.e. the power to decide which transactions to include in each block).
Blockchain and today’s technology
Blockchain came into existence when a mysterious online figure named “Satoshi Nakamoto” published a paper on an innovative new code for “A Peer-to-Peer Electronic Cash System” using a cryptocurrency called “bitcoin”.
Blockchain is an essential function of this electronic cash system. A blockchain, like the traditional ledgers used in banking, has a timestamp for recording transactions, and offers indelible proof of the transactions having taken place.
Here is a simple way to picture how blockchain works: let’s say a group of five workers have access to the same data, which is held independently in a separate vault that they all have access to. If any changes are made to that data, they are made openly, and each member validates, shares and synchronizes the data. With this, nothing is hidden, and no amendment can be made to any individual data without the approval of everyone.
Let’s look at another example: say you want to raise money for a humanitarian cause, such as sponsoring treatment of a cancer patient. So you open a GoFundMe account, and invite people to contribute. When your fundraising target is reached, GoFundMe credits you. A similar process is used in blockchain. For each new project, a smart contract is set up that has the required targets and agreements, and each participant can see the progress of the project. If the targeted amount is reached, the smart contact credits the beneficiary. If the project is canceled, the smart contract refunds each contributor.
Another illustration of blockchain is in healthcare. Most patient records still reside within the hospital. In emergencies, it can be difficult for other hospitals to have access to a patient’s records, so interoperability is a big hurdle. Blockchain is set to resolve this. With blockchain, all of the patient’s data from each hospital visited could reside within the blockchain, and any healthcare worker would be able to access it (with the consent of the patient). The data resides with the patients instead of the hospitals (but the patient cannot modify or delete these records).
Blockchain could be used for anything and by any institution, from education to financial transactions, to keeping records of votes, marriage, birth and death certificates.
Benefits of blockchain
- Data are kept more secure, and there is no central database that can be hacked. (This is the opposite of the traditional ledger, where data is held centrally.)
- Users have access to a database whose data is verified based on the authorization level, instead of relying on third-party information. In blockchain, the ledger is decentralized.
- Local financial institutions can reduce fraudulent transactions, and processing errors, while increasing productivity.
- International trade finance, which requires the transfer of funds and goods from one country to another, could be made more efficient. Blockchain could reduce the days spent validating transactions before payment is made, and reduce the rigorous efforts required to validate the authenticity of trade documents.
- Hospitals and other healthcare institutions could improve interoperability. Blockchain would give the patients the power to own their health data.
- Eliminates the interference of third parties (middlemen), such as credit-card companies, PayPal, MoneyGram, Western Union, social networks, government, schools or even crowdfunding sites such as GoFundMe.
- Educators could use blockchain to eliminate the proliferation of fake certifications.
- Employers could use it to verify the certification of job seekers.
Cryptocurrencies and blockchain
The biggest difference between cryptocurrencies (digital currencies) and traditional legal currencies is that no government issues or controls them. They’re also not saved in a file somewhere; they’re represented by transactions recorded in a blockchain – like a global spreadsheet or a ledger — which leverages the resources of a large peer-to-peer bitcoin network to verify and approve each bitcoin transaction.
Many people believe that cryptocurrencies could reduce the cost of cash transactions in many underdeveloped countries. Did you know that, in some countries, US dollars have to be imported by banks to facilitate the payment of physical foreign money across the counter? Imagine if they worked with cryptocurrency instead — it would reduce their importation costs (and risks of theft)!
The challenges of blockchain
Like other new technologies, there is still a lot of work to be done on blockchain, and governments will likely need to step in to implement security and privacy regulations.
Standards still need to be set to ensure the integrity, security, and confidentiality of the distributed ledger and its content.
Risk assessments also need to be done on blockchain and the ability of computing systems to execute a smart contract.
Our identities still reside in the physical world (drivers licenses, passports, etc), so a reliable method for authenticating digital identities needs to be established.
Creating a paradigm shift
Blockchain is not a matter of choice, it is already happening. Given the technology’s broad impact, most organizations should feel encouraged to educate their staff on blockchain, to have a better understanding of it and explore its potentials. After all, it is better to be proactive than reactive!
More collaborations between companies will have a positive impact on blockchain’s evolution. This will be particularly true for the development of permissioned ledgers, especially in international trade and supply chains.
Those looking to start working on blockchain projects can begin by supporting the creation of standards for the implementation of blockchain in various industries. Think about the many ways your business could be impacted if information is decentralized!
You don’t need to be a blockchain developer or business architect to delve into blockchain. There are alot of areas to become involved in, like security and risk management, process improvements, and data analytics. Identity management and provision of services for the blockchain software is also another area that needs research and investment.
It is clear that blockchain is here to stay. Just like the advent of computers, which took away registers and manual computation, blockchain is removing many of the data and transaction barriers that slow down many of our industries.
The goal of blockchain is to hopefully make our lives better. The key step now is to ensure we are all aware of how it works, and how it can be improved, so that we can ensure the longevity of this distributed ledger!
- “Realizing the Potential of Blockchain” World Economic Forum, June 2017
- “Distributed ledger technology: beyond block chain” Report by UK Chief Scientific Adviser, January 2016
- “Blockchain: The hype, the opportunity and what you should do” Angus Champion de Crespigny, Ernst & Young LLP, May 2016
- “Blockchain & Distributed Ledger Technology (DLT)” World Bank, April 2018
- “What Happens When You Combine Blockchain and Education?” Hackernoon, February 2018