Why has blockchain been called a bigger disruptor than the internet?

You may have heard of Bitcoin, and may even be familiar with the concept of distributed ledgers, but do you really understand what blockchain is, and how it could transform your business practices?

Author

Loriel Anderson

Blockchain is, quite simply, a chain of blocks that contain information. It was originally identified in 1991 as a way to timestamp digital documents to prevent backdating – similar to a notary authorizing a physical document.

Blockchain remained relatively unused until 2009 when, after the financial crisis, many lost trust in banks and sought alternatives in a decentralized payments network. Satoshi Nakamoto took the concept of blockchain and transformed it, creating a digital crypto-currency known as Bitcoin. Bitcoin was different from other forms of currency because there was no bank or financial middle-man involved. People from all over the world could move digital money by validating others’ transactions. Only one person can own a Bitcoin at a time, meaning that the cash cannot be spent twice.

But blockchain is about more than cryptocurrency. At its heart, blockchain is a distributed ledger technology that is completely open to anyone – once data is recorded inside a blockchain it is very difficult to change it.

How does it work?

Blockchain is a series of blocks linked together in a chain. Each block contains:

  1. Data or information;
  2. The hash (unique identifier) of the block;
  3. The hash of the previous block.
Hash of previous block contains the Hash value of its previous block

Hash of previous block contains the Hash value of its previous block

Image credit: https://steemit.com/hash/@wsmart/block-chain-hash-of-previous-block

The data that is stored inside of the block depends on the type of blockchain. For example, with Bitcoin the block stores details of the transaction, including the sender, the receiver, and the amount of the transaction.

The hash within the block is a unique identifier, like a fingerprint. It identifies the block and all of its content. Once the block has been created, its hash is calculated. Changing something inside the block will cause the hash to change.

The block also contains the hash of the previous block. This is what creates a chain of blocks, and what makes a blockchain so secure. Each block points to the previous block in the chain. The first block cannot point to a previous block, as it is the first link in the chain. It is therefore known as the ‘Genesis block’.

If you were to tamper with the second block in the chain, the hash of the block would change. This would make the third and all subsequent blocks invalid, as block 3 would no longer store the valid hash of the previous block, effectively breaking the chain.

Slow down…

However, using hashes is not enough to prevent tampering. Computers could very quickly recalculate all possible hashes and revalidate the block. Therefore, blockchains incorporate a ‘proof of work’, which slows the creation of new blocks. For example, with Bitcoin it takes ten minutes to calculate the required proof of work and add a new block to the chain. If you tampered with one block in the chain you would need to recalculate the proof of work for all following blocks – a very timely process!

Distributed ledgers

The security of blockchain comes from hashing and the proof of work, but there is a third security feature embedded into the system: distribution. Instead of one central entity managing the chain, blockchains use a peer-to-peer network that is open to everyone. When someone joins the network they receive a full copy of the blockchain and are able to verify everything in it. When someone creates a new block it is sent to the whole network. Everyone in the network verifies the block to ensure that it has not been tampered with. This creates consensus amongst the network – everyone agrees which blocks are valid and which are not. Any blocks that have been tampered with are rejected by the network.

To successfully tamper with a blockchain someone would have to change the hashes for all blocks in the chain, redo the proof of work for each block, and take control of more than 50% of the peer-to-peer network. Only then would the tampered block be accepted by everyone in the network. These security features make tampering with a blockchain almost impossible.

The future of blockchain

While Bitcoin is blockchain’s most well-known use, blockchain is constantly evolving. One of its most recent developments is the creation of smart contracts, which can be used to automatically exchange and authorize information on a distributed ledger network. For example, Bow Valley College in Calgary recently announced that it will be rolling out blockchain to validate student credentials, providing individuals with the ability to instantly share qualifications and education in the form of degrees, diplomas, accreditations and certificates in a real-time, tamper-proof, indisputable system.[i]

Large-scale businesses are recognizing the potential in blockchain as well. Walmart Canada is rolling out an automated blockchain-based network for tracking freight and payments[ii] and Shoppers Drug Mart is employing blockchain to track medical cannabis.[iii] The implications of blockchain are truly limitless – from passport verification and airport security[iv] to improving cargo supply chains.[v] Industries across the board are leveraging blockchain technology to maximize opportunities to reduce costs, improve timelines, and eliminate disputes.

Unsure how blockchain will impact your organization? Stay up to date on current trends and disrupters by registering for our upcoming Blockchain for Business program.

 

[i] “Bow Valley College Selects TerraHub Technologies for Blockchain and Biometric Engabled Digital Credentials”, CNW Group, September 18, 2019: https://finance.yahoo.com/news/bow-valley-college-selects-terrahub-154100068.html

[ii] “Walmart Canada Rolls Out Blockchain-Based Freight and Payment System”, Cointelegraph, November 14, 2019: https://cointelegraph.com/news/walmart-canada-rolls-out-blockchain-based-freight-and-payment-system

[iii] “Canada largest drug store chain to use blockchain technology to trace medical cannabis”, Radio Canada International, June 17, 2019: https://www.rcinet.ca/en/2019/06/17/canada-largest-drug-store-chain-to-use-blockchain-technology-to-trace-medicinal-cannabis/

[iv] “Pilot program allows passport-free travel between Canada and the Netherlands”, Canada.com, August 7, 2019: https://o.canada.com/travel/pilot-program-allows-passport-free-travel-between-canada-and-holland; “Spotlight on Oaro”, Digital ID & Authentication Council of Canada, September 26, 2019: https://diacc.ca/2019/09/26/spotlight-on-oaro/

[v] “Canadian Terminal Operator Joins Maersk and IBM’s TradeLens”, Cointelegraph, October 21, 2019: https://cointelegraph.com/news/canadian-terminal-operator-joins-maersk-and-ibms-tradelens