Blockchain: What it is and why it matters to IT and business leaders
Blockchain is data structure that makes it possible to create secure distributed digital ledger of transactions between two or more parties without the need for a central clearinghouse. Blockchain originally rose to prominence as Bitcoin’s digital ledger, recording transaction for the cryptocurrency. Its ability to store data publicly and anonymously is what gives Bitcoin its security and immense flexibility. By distributing data across a large infrastructure, it is possible to attain highly accurate, secure records. When transactions or other data are added or edited, the other nodes (parties) must evaluate the transaction and compare it to their own records, eliminating the need for central data storage or verification. Illegitimate additions are automatically identified by the system and rejected.
Why blockchain matters for business
Although blockchains were first popularized by Bitcoin, they have applications far beyond cryptocurrency. The technology’s ability to allow two or more parties to have complete confidence in transactions without the need for a centralized third party has obvious benefits in the world of business. Today, so called blockchain 2.0 technologies are being developed that will allow two parties to create sophisticated automated contracts that allow for profits to be automatically divided or payments to be automatically made after certain events. This reduces the need for escrow services and clearing houses while expediting transactions and settlements. Blockchain technology may also provide a more secure platform for transactions than traditional means, reducing fraud and necessary security infrastructure.
Some real life examples include Nasdaq, an early adopter of blockchain, is using the technology to allow private companies to issue stock and stockholders of public companies to vote their shares. Everledger is using it to create a registry of diamonds to suppress trade in “blood diamonds” from conflict zones.
Despite its significant advantages over centralized data structures, blockchains are not without their challenges. Distributing data across a wide range of nodes may provide a larger attack surface for bad actors than traditional data storage method. Although this isn’t a problem in blockchain’s original implementation, bitcoin, where all data is public and anonymous, it could be a problem in other implementations where keeping record details private is critical.
As reported by the news media, the story of Ethereum blockchain, an online ledger that records transactions and lets users trade ether, the second-most popular cryptocurrency, behind bitcoin was hacked. A key part of Ethereum allows people to put smart contracts which are written in computer code and run on Ethereum’s network. On June 17, 2016 the DAI (Decentralized Autonomous Organization) announced it was hacked using the Ethereum network. It was reported the hackers exploited a feature of DAO’s smart contracts to siphon off roughly $50 million of its members’ contributions to the fund.
Blockchain in its current form may also be challenging to implement. Because it is an open source project, it has many competing variations and standards. This may make it difficult for companies to create a single production ready solution that meets their needs. It is only in recent years that certain groups are trying to make the technology feasible for enterprise applications.
Ultimately, it’s critical that IT and business leaders stay aware of blockchain technology and investigate how it could impact their business. Its ability to store data accurately and securely without the need for a centralized service has many applications that may provide increased security and efficiency for the enterprise. Blockchains may not be perfect yet, and need further safeguards, but they undoubtedly provide a glimpse into the future of data structures and transactional records.
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