If you've opened a newspaper in recent years – literally or digitally – there's a good chance you've found the terms "blockchain" and "DLT". Despite the increasing coverage of these technologies, few people worry about stopping and explaining how they work, what they are for or why they are needed. And this is a problem why? Well, I think you need to know what an instrument does before you can really identify why you might want to use it and with the blockchain being advertised as a vital element of our future, having an awareness of the basics should not hurt!
Blockchain means blockchain
Unfortunately, blockchain did not have a universally accepted definition for a while. Google defines "Blockchain" and you will be told that it is "a digital ledger where transactions made in bitcoin or in another cryptocurrency are recorded chronologically and publicly." IBM, on the other hand, called "peer-to-peer" a network of parties, all participating in a given transaction. "They not only look very different, they are also completely impenetrable to the average person.
Under often lucid and enraged marketing, a blockchain is actually a very simple data structure. Using established cryptographic principles (which have supported email security and online banking for years), it provides a means to track data and link subsequent versions together as they evolve over time. Leaving aside the hairy mathematics below, there are some key elements to consider:
Digital signatures indicates that a person / entity who signs a document approves its content. In the real world we tend to use only one physical signature & # 39; unique & # 39; to show that we have signed something (unless we are a celebrity), but digital signatures are different as they change according to the specific document they are applied to. Nobody can take your signature from one document and apply it to another, as this would invalidate the signature. Digital signatures work through a pair of keys: private keys they should be kept secret and are actually the & # 39; password & # 39; necessary to sign messages on behalf of their correspondents public key.
Anyone can verify that the messages signed by a specific public key are valid, without knowing the associated private key. Thanks to this, public keys can be used as a form of pseudonym identity – this is not a new application but it is an important basis for the interaction between systems.
Cryptographic hash functions take a digital input and turn it into a condensed and encrypted version of itself that is actually unique (in reality it is not, but to avoid getting bogged down, let's assume they are unique enough to make mere mortals with modern computers work with them ). We call input to a hash function a Messageand his exit a message digest (which is only a very large number). Today, even basic PCs are very good at math involved in these calculations – your average laptop could beat millions of them per second if you ask for it.
If even one bit of the original message is changed, its digest will change completely, which makes these algorithms excellent for detecting if the data has been tampered with. It is not necessary to keep an extra copy of the original file to check its contents as they are unchanged if you store the digest, making them very efficient even for storage. This is useful when we apply it to individual files, but becomes even more powerful when we use hashing algorithms to refer to and validate more complex data structures.
You can check huge data sets with a single hash value through a binary tree structure known as Merkle Trees (named after their inventor Ralph Merkle, a bit of a legend in the world of cryptography). These hashes recursively hash pairs up to a single hash at the top of the structure, making it possible to not only identify the changes in any part of the entire data set by calculating that single hash, but also allow us to test whether certain data they were present in the original state.
We combine these technologies to "build" a blockchain: Merkle Trees summarizes the latest version of the entire data set, the public keys act as identities to monitor the proposed changes and the digital signatures securely link the two . Keeping track of the last hash that covers the entire blockchain, any attempt to change the story can be efficiently identified and rejected and it is possible to test if some data existed within the chain at a given point. of history without keeping the entire data set stored locally.
This is still rather long-winded, so let's further simplify and finally get a definition that we can work with:
A blockchain is a list of continuously growing records, which are connected is secured using cryptography.
This list of records is often referred to as a ledger only for queuing; the new additions are timestamped and recorded at the end of the list and, thanks to the built-in history, any attempt to change the past immediately invalidates all subsequent records, making it easy to see if a proposed addition is valid or if someone is trying to pull the leg. We add blocks of new data to the historian chain – hence the name.
You can have the blockchain equivalent of a solitary microwave meal; a 'ledger for one' if this is your problem, but for most users it will not add much value to the business – to start using the technology correctly you have to engage other people …
I'll take a DLT please, but keep the mayo
The DLT seems to be another of those fantastic abbreviations that have been adopted by politicians and businesses before anyone even knows what it represents; but I will let you enter an industrial secret; stands for Distributed Ledger Technologyand DLT is what can make a blockchain very interesting from the business point of view.
Historically, data has existed in silos – sometimes intentionally, but often through lack of integration into other systems that sit nearby, but are simply out of reach for one reason or another. In what we call a centralized system, everyone needed to go to that single silo to access the data; we have to trust the owner of that system to protect it, and trust is not cheap.
Alternatively, we can take that data and distribute it on a network of participants. We establish common rules on who can view and / or modify data and simultaneously update all live copies of data according to these rules. No one can ignore data alone – all changes are agreed on a programmatic basis and performed by consensus. Variable levels of decentralization it can be implemented, depending on your needs.
Moving away from data silos is the essence of DLT and we will understand why it is so interesting shortly.
But wait; where do all Bitcoins come from?
It is probably worth making a short detour to the left and mysterious land of cryptocurrencies at this point. Firstly, contrary to popular opinion, cryptocurrencies like bitcoin are not blockchains. I hate working on the point, but this is important, and there is a fundamental distinction:
Cryptocurrencies use blockchain and DLT to keep their books masters
See bitcoin as blockchain is wrong as saying that eBay is the internet; eBay uses the Internet to provide the services it offers, but the Internet can be used much more than selling your old kettle. McKinsey has released a great piece on blockchain at the start of this year, which deals with this in more detail, and I highly recommend giving it a read.
Cryptocurrencies are an excellent example of blockchain and DLT in action. Most cryptocurrency implementations use public registers "without permission"; allow anyone who wants to participate in the network to download a copy of the distributed ledger, verify incoming transactions and propose new ones. Security measures are added to discourage malicious actors from attempting to abuse the system – this is where the term "mining" comes into play and is what makes the bitcoin network high energy consumption necessary.
In terms of blockchain / DLT applications, cryptocurrencies are technically feasible because they track the ownership of purely digital resources – no connection to the "real world" is needed to check if someone has sent someone else their bitcoins, for example, since # 39; is nothing physical. Once we look at other sectors, which are interested in locating, tracing or trading physical assets, things become slightly more complicated, and it is here that it becomes important to see these new technologies as enabling factors rather than solutions. Linking digital systems to physical elements is an entire industry in itself and blockchain / DLT can not solve this problem alone, but can offer a means to validate and share data between the new generation of sensors and systems that do so.
What does all this mean for me?
The breadth of possible implementations will manifest in different ways for different sectors, but I think it is unlikely that any industry, which involves people interacting with other people, will remain long-term blockchain / DLT.
Few companies operate in isolation; Whether it's primarily suppliers, customers or both, there are often bottlenecks and friction points at interfaces. DLT offers the opportunity to share reliable and widely shared data on these interfaces; providing a base layer of mutually agreed information it is possible to act all before, saving time and money.
The nature of your industry will determine to a certain extent the value and speed of adoption of these technologies. Do you work in the public sector and take control of the decisions made by your company? In this case, an authorized public network can improve visibility and accountability without giving up the rights to add new data to the general ledger. Are you more interested in B2B / B2C sales and do you need to keep your operational data private for business sensitivity? An authorized private network could make more sense if it were, with the associated guaranteed access rights to ensure that customers can not leverage on transactions with competitors.
But it's not good for everything, right?
That old expression "on a hammer, everything looks like a nail" comes to mind here, and as with any other technology there are situations where the application of blockchain / DLT will be valuable and there are situations where other tools are more fit to achieve the desired result It is important to know when you do not need blockchain as much as when you do, and again the answer to this question often depends on the person you are asking.
In the business world there is always the risk that new technologies are required because they are new and exciting. It is important not to let yourself be enthusiastic and concentrate instead on defining the problems you are facing, then evaluate the tools at your disposal before you start creating a solution.
Authorized blockchain and DLT implementations can work much, much faster than networks without authorization that support cryptocurrencies, but if you're doing an internal blockchain between people you already know and trust, you've just created a complicated database. It has become a bit cliched in the industry that "blockchain is a team sport", but the sentiment is valid; It's hard to share information if you're the only one who can see it!
Moreover, any data structure is only valid as the quality of the data it contains, so if the existing data is useless then blockchain and DLT will do a great job in recording that junk for you, but do not expect to correct the underlying problem.
Blockchain and DLT are reduced to a new application of consolidated cryptographic processes. They will not solve the world on their own, but they will offer us new ways to trust and share information, and it will take some time before we fully understand their full value. But please, do not take this as a call to "block all things!"
Instead, I leave you with an analogy:
Imagine arriving home one evening and finding water all over the hallway floor. Keep your boots and track the leak at the origin, which restricts your definition of the problem ("my floor is more humid than normal" becomes "there is water flowing out from behind my washing machine"). Now you have collected this information about yourself by switching off the water to the network rather than running to discharge your heating system. With the problem under some semblance of control, look for help. Call a plumber, rather than an electrician or a hairdresser. You are not necessarily sure of the tools the plumber needs to bring with you, but you know that they will have the tools and the experience needed to solve the problem.
I'd like you to watch blockchain, DLT or any other new technology the same way. First, define your business problem and your problem should not be "I do not have a blockchain". Limit the problem as much as possible, so ask yourself what prevents you from solving it. Identify the necessary changes ("I need better access to information from my suppliers") and then you can start evaluating the suitability of potential technologies. Ultimately, blockchain and DLT are tools and tools are only useful for specific problems: you need to know the problem you want to solve before you can choose the right tools for the job.
Tom Collingwood, Blockchain technical specialist, Hartree Center
Credit image: Zapp2Photo / Shutterstock