Blockchain can be best understood by thinking about a human chain. In a human chain, we have a person who has certain properties like name, color or shirt, hair, eyes, and others pointing to the next and previous person in the chain. You can set rules on who can join the chain and prevent any unauthorized elements.
Blockchain just happens to be digital and a lot more secure. The two key building blocks of a Blockchain are Block and Chain. Block refers to a piece digital information about a given transaction. This includes things like model, price, brand, and other details. Each block stores information to a prior block thereby creating a chain. This chain of blocks are distributed across a network of computers. In other words, Blockchain is a digital ledger of transactions that are distributed across a network of computers. This is also known as Digital Ledger Technology or DLT.
How it works?
Every Blockchain starts with the first transaction also known as the Genesis Block. Each block has a unique code called "Hash". It also stores the hash of the previous block. Hash is secure and is generated via a cryptographic code and algorithm.
Cryptography refers to the art of conducting secure data transfers or messages.
Any authorized computer also known as a node can join the network and receive a copy of the blockchain. These nodes establish what is known as consensus.
Consensus is programmatic way of figuring out what blocks are valid and what blocks are not. Each time a block is updated all the participating computers receive the updated copy of the blockchain. Let's look at an example. Say a manufacturer created a baby crib in China. The manufacturer initiates the Blockchain by creating the Genesis Block for the crib. The manufacturer then ships it off a warehouse in United States. The warehouse records the receipt and creates another block. Both the genesis block and the warehouse block are connected in this chain with references to the hashes. The warehouse block has a link to the hash of the genesis block. The warehouse now moves the product to a store. The store then creates a block and writes it to the Blockchain. You now buy a gift for your best friend and ship it to a different country. The store writes a brand new block to the chain. Each block has information about what the transaction is all about and who is participating in the transaction.
Let's say the Consumer Safety and Protection divisions of every country join this blockchain network. Each time a new block is created the continue to receive the information. Now a manufacturer issues a recall. Without the blockchain network, the manufacturer would write to the warehouse, warehouse would figure out the stores it sent to and contact the stores, the stores would then reach out to every single consumer. However with a blockchain network, the consumer safety and protection divisions are instantly notified of the recall and then can simply reach out to their consumers.
Blockchain brings together end-to-end transparency like never before. Sounds cool and altruistic. But is it secure?
Yes. One of the key features of Blockchain is security. Let's say a hacker tries to hack into a block. The block first presents what is known as a proof-of-work. Think of it like a math problem that takes more than 10 minutes to solve. Let's say the hacker solves the problem on a block, it generates a new hash. But the hacker now needs to update the next block with the new hash. The next block now has a new hash. The Hacker now has to update the subsequent block.
The hacker needs to update the entire chain and for every block needs to solve the math problem. Between the hashing and the proof of work and technological capabilities, Blockchain makes it incredibly difficult for hackers to hack. Take that and apply it across all the computers on the network.
The computers on the network have a concept of consensus. Consensus is handshake between computers on the node that is used to understand if they can accept refreshes to a blockchain. This makes it extremely difficult to hack into a blockchain.
How is it used?
The most obvious example is Bitcoin which is actually known as Cryptocurrency. Each bitcoin is basically a computer file that has a certain value but it isn't real cash. It is electronic. Bitcoins are built on Blockchain technology. You can buy and sell bitcoins. Unlike real cash there is no central administrative bank but it is distributed across computers with a high-degree of traceability of how money originated and was transacted. In fact people now dedicate computers to the Cryptocurrency network and charge money for it. A concept that is also known as Bitcoin Mining.
The example we used earlier about the baby crib and safety recall is actually a real use case. Several companies mainly in food and grocery are working on creating a consortium to increase transparency, traceability of products.
With passing time and maturity, the use cases continue to expand into marketing, healthcare, diamond business, oil and gas businesses and so on. However, mass adoption is stifled by lack of regulation or incentive, speed and ease of use, and its invisibility. It is a technology platform that sits behind the scenes. Bitcoin is a great example of how adoption increases when there is an incentive.
Key Terms and Definitions
Let's quickly review terms and definitions.
- Blockchain - Blockchain is a technology that stores a connection of digital information nuggets or transactions across a network of computers. Digital Ledger Transaction or DLT is another name for Blockchain.
- Node - Node in this context, refers to a computer that stores and receives block chain updates.
- Hash - Hash is a secure and unique code that is used refer each block of digital information.
- Flow-of-Work - Flow of work is a problem that any party updating a block has to solve before gaining access to the information within the block.
- Consensus - Consensus is a digital handshake between two computers within a blockchain network wherein they can accept or decline blocks.
There are three versions of Blockchain. Blockchain currency or version 1.0 that was popularized by bitcoin, Blockchain version 2.0 also known as SmartContracts that refers to live computer programs that execute and validate certain rules and conditions, and Blockchain version 3.0 referred to as DApps and as the name suggests they are full blown distributed apps.
There are three different types of Blockchain networks. Public that anyone can access, Private that is restricted to a given organization, and Consortium that is restricted to a group of organizations.
While Blockchain is a great technology, its adoption is been largely limited by lack of regulations to enforce adoption. It is incentive driven. Cyrptocurrencies were successful because it involved value and yet there was confusion across countries on how to deal with it. Additionally, Blockchain is a technology that resides behind the scenes and is not visible. Investing in technology sans visible benefits is a bit challenging as well as the ease of building and being a part of blockchain isn't not yet completely there.
So if you are a c-suite executive, continue to stay tuned about developments in this space and be strategic about its use. If you want to become an expert then continue to explore training opportunities available around the web.