In the recent months, cryptocurrency – especially Bitcoin – has been in the news, primarily due to the steep rally its price has experienced. And while cryptocurrency has as many naysayers as its supporters, one thing is for certain: the underlying technological innovation – blockchain – is a breakthrough in the way data is stored and transactions are recorded, with potential ramifications across multiple different industries and applications.
Building trust through blockchain
While it seems complicated, it is easier to think of blockchain as a database – with key differences in the way the data is stored. Each block of data in a blockchain contains a highly encrypted list of entries followed by a hash, and an exact timestamp of when it was added to the database. A chain of such blocks creates an irreversible timeline of data that is set in stone. This data cannot be changed without changing the data in all the blocks in the chain – thus making it a trustworthy record, especially when implemented in a distributed fashion.
If a change is entered in a block, all the computers in the entire network check to see if the change is valid. In the case of Bitcoin, these computers are highly distributed across the globe and owned by multiple individuals or groups of individuals – making it extremely difficult to tamper with. By combining encryption, decentralization, a multitude of stakeholders and community control, this system is nearly un-hackable.
In this fashion, blockchain technology promises to build an automatic, trustworthy ledger which can capture a record of transactions or events that is immutable and transparent. It does so without the need for intermediaries to verify the authenticity of the transaction, which are typically required in today’s payment systems.
Why blockchain matters today
Cryptocurrency is perhaps the most popular, and definitely the most well-known use of a blockchain open ledger. But it also lends itself to a myriad of other applications by its immutable nature – for example, fool-proof voting systems, financial transactions, product inventories, supply chain, property deeds, medical records, and many more. In the corporate domain, blockchain networks can be used to facilitate trust and transactions among business partners.
From an IT point of view, blockchain can be used wherever a reliable and secure database is needed to track, log and store metrics about the health of the infrastructure. For example, blockchain can be used to track the deployment of an asset (firewall/load balancer/switch/router) on the network, including the initial configuration and then subsequent changes made, the people who approved the changes and the applications impacted. This creates an immutable change record that can be used to track back in case of any issues or for compliance purposes. Further, blockchain has a variety of cybersecurity and IoT use cases. For instance, blockchain can be used to decentralize the DNS, making it difficult to attack.
Current challenges and the road ahead
For all the promise that blockchain holds in solving problems reliably, there are still some issues that need to be addressed before large-scale adoption becomes possible. One of the key challenges with blockchain is the large amount of computing power required to process a transaction. Because all the nodes in the blockchain network need to process each transaction, this restricts the scalability of the system. In the case of Bitcoin, the transactions per second rate is 7. By comparison, the Visa network is reported to process close to 1700 TPS. There is also growing concern around the vast amounts of energy required to arrive at a consensus. These are the key problems that need to be solved for widespread adoption.
And while blockchain is a radically new concept in IT, it presents CIOs with many of the same people-process-data challenges as other early-stage technologies, including the immaturity of standards and IT-team skills, concerns about security, and questions about interoperability and scalability. It takes time for industries to develop the collaborative ecosystems necessary for the many blockchain use cases to flourish.
Blockchain is an emerging technology with ever-growing potential across a wide range of industries around the globe. For example, in the supply chain, it can be combined with IoT and used to track goods to fight counterfeiting, among other benefits. Automobile companies can use blockchain to accurately verify a vehicle’s history including mileage, repair and maintenance history. There are efforts from large banks and financial institutions that are exploring blockchain-based payment solutions and B2B services. This has led to the emergence of several private blockchains, which can be owned and governed by only a select number of verified participants. However, this dilutes the distributed security of a public blockchain, and the advantages that go with it.
In summary, blockchain provides a good alternative to traditional solutions where different parties want to ensure accountability, transparency and immutability of records digitally. However, there are still challenges that need to be resolved before it can be applied to a larger set of problems – and this requires time and efforts. That said, the innovation that blockchain has brought has the potential to revolutionize many industries and businesses in the not-too-distant future.
The author is Anand Patil, Director, Systems Engineering, Cisco India and SAARC.