The blockchain technology behind Bitcoin crypto-currency has captured the imagination of industries outside the tech sector, from the manufacturing supply chain to banking and finance. We take a look at the potential of blockchain algorithms for providing secure methods for sharing mission-critical information between organizations.
The first virtual currency, Bitcoin, was mined just over 10 years ago (on January 3, 2009, to be exact), and the publicity hype machine surrounding it has operated at warp speed ever since. We’ve seen fortunes won and fortunes lost during this tumultuous first decade, with Bitcoin prices shooting up from $0.30 at the start of 2011, rising to over $30 by June, only to crash to less than five dollars only two months later. Indeed, we probably reached ‘peak bitcoin’ hysteria in early 2018 as companies sought to pump up their stock valuations by announcing improbably new strategies revolving around the underlying blockchain technology that powers Bitcoin. Exhibit One in this category is Long Island, a New York-based beverage company that changed its name from Long Island Iced Tea Corp to Long Blockchain Corp. only to see a 30% rise in its stock. Sensing its moment had come, the remnants of the once proud Kodak Company announced they too would create their own “altcoin,” dubbed KodakCoins, to be used by clients to pay photographers, in a vain attempt to recapture past glory (and pump up the stock of a Kodak-branded spin-off IPO). These initiatives, along with countless other similar overhyped ventures, appear to have come to an ignominious end with investors holding the bag.
Not crazy enough for you? Then check this out: to date, there isn’t even a clear consensus on who created blockchain in the first place; we only have the name of the purported inventor, Satoshi Nakamoto. But is this a pseudonym for an individual or a group of software developers? For many years, there was only speculation surrounding the true identity of the mysterious Mr. Nakamoto. However, a litigious individual, Craig Wright, has recently come forward claiming to be the true inventor of Bitcoin and blockchain. Time may yet unravel this mystery.
Given its dodgy history and high drama, why are we even talking about blockchain for business applications?
The answer is blockchain technology has the potential to solve some very basic business problems, as we’ll see in the next section.
What Business Problems Does Blockchain Technology Attempt to Solve?
So what is blockchain exactly?
MIT Technology Review has a succinct definition of blockchain: it’s a public, permanent, append-only distributed ledger.
Huh?
That’s difficult to understand, but there are some concrete business case examples to explain further
Let’s start with three:
1. Blockchain Addresses the Problem of Data Loss due to Hardware or Connectivity Issues
Have you or someone you know had a computer hard disk fail? If you didn’t maintain a recent backup, the result is catastrophic data loss. Corporate data centers commonly use so-called RAID drives (which stands for Redundant Array of Inexpensive Disks) to address this problem. RAID drives divide and copy portions of the data onto each of its several hard disks in a very clever way – if one disk should fail, there is enough information replicated on each surviving disk to recreate the original data lost on the failed disk.
Blockchain technology provides an analogous solution. However, instead of relying on multiple hard drives within a central RAID array, the data itself is distributed among the users, with no central, official repository. That means that if a user experiences a major hardware or connectivity failure, the system can proceed without him or her. How does this work exactly? Each time a transaction is recorded (a stepwise function known in blockchain terminology as a “block”), all the underlying data (e.g. the sum total of ledger transaction records, from the beginning) is replicated onto each user’s machine via a peer-to-peer network. If a user happens to miss an update due to a hardware or connectivity problem (or are a new user joins the system for the first time), they simply download a fresh copy of all the “blocks” in the historical chain of transactions (hence the name blockchain) to get synchronized again.
2. Blockchain Addresses the Problem of Data Corruption due to Intermittent Hardware or Connectivity Issues
Single points of failure, such as a hard disk crashing, are usually easy to detect if the errors are reproducible. On the other hand, intermittent issues (particularly ones involving multiple hardware and software systems) can be devilishly difficult to diagnose.
This poses a problem for system designers. What do you do when there is an error? The answer depends on the scenario. If you play an audio CD and it hits a bit of missing data due to a scratch or manufacturing error, the player can often detect the error and interpolate the remaining data to “fudge” the missing sound. You might not even hear the difference. But with life-critical systems, such as modern jetliners that rely on sensors and computer software-based automation to move the flight control surfaces on the wing, rudder, and horizontal stabilizer, you need to build in more redundancy by adding in duplicate computers and sensors. If all their data is in agreement, everything is fine. But when there is conflicting, unreliable data (a scenario known as “the Byzantine General’s Problem” in computer science), then measures must be taken to create a “fault-tolerant” design.
How does blockchain handle faults when confronted with data errors? At a basic level, blockchain stops in its tracks when it encounters a request that appears to be invalid. In other words, if it encounters a mismatch in the data in the transaction ledger shared between two parties, no block update request can propagate across the network. In the case of Bitcoin, these checks prevent monies from being transferred more than once (double spending).
3. Blockchain Addresses the Problem of Data Security and Trust by Making the Ledger Public
Hardware and software errors are not the only data security issue. The blockchain has to also protect itself from willful fraud and theft.
Two blockchain design features help in this effort. The first is the immutability of the historical transaction ledger. In other words, given the way that blockchain is structured, it’s very difficult to change the numbers in old transactions. In the case of Bitcoin, this means that you can’t go back in the records and add a million dollars into your account – to do so would require changing all the other transactions within the ledger, so the money was in your account and not in someone else’s.
The second design feature is distributed networking. Even if you could change the values in your own ledger, all the other users have their own copy of the ledger transaction records, and the blockchain would identify this discrepancy and invalidate your account, thus preventing you from making a fraudulent transaction.
In general, it’s easier to trust blockchain transactions because the ledger is publically available to all users. Contrast this to centralized systems, such as those found at a traditional bank. What happens if the bank makes an honest mistake that costs you money? As a consumer, it’s more difficult to prove your case because you don’t have equal access to the bank’s ledger.
Potential Problems with Blockchain Technology
So far, we’ve given you a fairly rosy description of blockchain’s design features.
You may ask, what could possibly go wrong?
Several things actually, here are four examples.
1. Growth of the Blockchain File over Time
For example, it might have already occurred to you that the requirement that each user keep their own copy of the entire transaction ledger poses both a storage and data transmission problem.
In the case of Bitcoin, the size of the blockchain ledger has been growing at a steady linear pace. (See https://www.blockchain.com/charts/blocks-size for an up-to-the-minute graph.) Currently, the bitcoin blockchain is around 21.3 gigabytes, and it takes about 10 minutes to generate a new block in the Bitcoin blockchain (known as the “block time”). Some estimate that if Bitcoin were to be used as a global currency (equivalent to approximately 1.4 billion transactions a day) then the blockchain file size would have to grow by 350 gigabytes a day, or 127 terabytes of data every year.
That’s not practical with today’s computer storage and network systems, so computer scientists are looking for ways to solve this issue.
Computer scientists are investigating ways to make the blockchain more secure and efficient.
2. Conventional Computer System Attacks
We also mentioned that blockchain is resistant to faults and fraud. That’s mostly true as far as the core technology goes (there have, however, been some notable errors introduced into Bitcoin during software upgrades) but blockchain is vulnerable to the same problems affecting all software connected to the internet, from denial of service attacks to phishing attacks to gain user passwords, or an increasing number of cases where users have been robbed and forced to give up their passwords at gunpoint.
3. Lost Credentials Means Losing Everything
On the other hand, losing or forgetting blockchain usernames and passwords can be especially cruel; as there is no provision to click on a button saying “I forgot my password.” Such was the fate of cryptocurrency executive Gerald Cotton, whose passed the young age of 30 without writing down his credentials, leaving his family unable to access the $283 million worth of cryptocurrency purportedly held in his account.
4. Unscrupulous Agents Acting on Your Behalf
What if you wanted to put your cryptocurrency blockchain account in a ‘safe’ place where you could make a withdrawal in other currencies, such as dollars? Cryptocurrency “exchanges” have emerged to provide these kinds of important financial services. It’s been a rocky road, however. In one of the most infamous cases, individuals who had entrusted their accounts to the Japan-based Mt. Gox exchange lost over 850,000 Bitcoins in a 2014 fraud scheme. (Mt. Gox is currently restructuring and may be able to pay back some of what it owes its former customers.)
If you were designing a virtual currency, you might create a ledger system similar to blockchain, as demonstrated in this video.
Beyond Bitcoin: Seeing the Value of Secure Blockchain-based Transactions
Given all the negative drama surrounding Bitcoin virtual currency, it’s kind of surprising that business executives and technology futurists can still foresee great potential in the underlying blockchain technology.
And well they should.
Savvy individuals have realized that blockchain algorithms have the potential to solve a number of long-standing business problems by offering a means to safely exchange information in a verifiable way that satisfies all parties involved.
The world’s leading consulting companies, such as Deloitte, PWC, and Accenture have stepped in to provide company executives with top-notch advice on how to implement blockchain systems. Meanwhile, major software and hardware companies, from IBM to Microsoft to Amazon, are creating custom blockchain frameworks and cloud computing solutions for companies to take advantage of these new technologies.
Here are a few examples across different industries:
Fintech
Banking, finance, and insurance companies are working on next-generation finance technology solutions, collectively known as Fintech, and many are exploring cryptocurrency solutions along the lines of Bitcoin, Etherium, and other so-called altcoin technologies. Forty leading financial institutions have come together as part of the new R3 consortium to develop financial services applications based on blockchain’s distributed ledger technology, which could be used to accurately maintain financial records for a mortgage or allow insurance companies to maintain a secure history of claims.
Government
Government officials around the world are looking at applications for blockchain technologies (the Federal GSA has a resource page for government employees). Among the ideas under contemplation are blockchain-based voting systems that would theoretically be more resistant to election fraud, as well as systems to streamline and automate the collection of customs duties at borders (between Ireland and Northern Island, for example, once Britain leaves the European Union). Politicians, such as US Presidential candidate Andrew Yang, have made blockchain part of their government policy campaign platform.
Supply Chain Management and Manufacturing
Blockchain technology offers the promise of helping to reduce fraud, waste, and abuse in the supply chain. The shared, public ledger technology could help keep trading companies “honest” while providing a more secure way to track the “chain of custody” in industries where there’s a critical need to certify that items inventory are genuine and unadulterated, including pharmaceutical medicines, medical devices, aerospace and aviation parts, and more. Secure, accurate tracking systems based on blockchain ledgers would make it easier to quickly trace failures back to their source, allowing for faster corrective action.
Retail Sales
Blockchain transactions not only offer a secure way to share secure data with distributors, they also offer a secure way to share data with customers. For example, CRM and customer loyalty programs could be moved into a secure blockchain ledger, allowing transactions to be processed automatically without having to go through a central processing agency.
Human Resources
Companies need to collect and maintain significant amounts of data for each of their employees, including salary records, bonuses, benefits, vacation time accrued and used, insurance coverage claims, and expense reimbursements. Blockchain technology offers the potential of maintaining a secure record for each employee in a single place.
Who is Using Blockchain Today? Formaspace Customers on the Forbes Blockchain 50 List
Forbes magazine recently compiled a list of the top 50 companies that are making a move to blockchain technology. (You can read the full list here.)
We’re pleased to congratulate these companies on the list whom we proudly serve:
- Amazon
- CVS
When it comes to creating productive work environments, turn to Formaspace. Three out of four of our major customers are listed on the Fortune 500, such as Dell Technologies, makers of Dell computers. We’re also proud to have more than 350 major universities and colleges among our satisfied customers, including most of the Ivy League institutions.
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