Technology is constantly changing and trying to keep up with the latest tech jargon can be tough. I was recently asked to explain what blockchain and distributed ledger technology means to people who might not be familiar with this fast-growing tech and explain how businesses can benefit from using it.
Why should businesses care about blockchain? What are the benefits?
There are a number of benefits of distributed ledger technologies like blockchain. To try and keep it simple, I divide them into four buckets — Decentralised, Secure, Transparent and Efficient.
What is distributed ledger technology?
Also known as DLT for short, in simple terms it is the next phase in the development of the internet and global technology infrastructure.
It effectively means upgrading today’s online services — which are centralised, vulnerable to hackers and inefficient as the technology is old. And creating a new decentralised global network of services which tackles the security issues of centralised systems, whilst simultaneously unlocking enormous potential to transform how we conduct our lives online.
DLT, particularly when combined with machine learning, artificial intelligence and the internet of things (IoT), is forcing companies to re-examine the way they do business — customer expectations, product enhancement, collaborative innovation and organisational structures.
What is Blockchain?
Like any emerging technology, blockchain can seem confusing and complicated to non-tech people. In simple terms, blockchain is just a digital record that records information in a publicly verifiable way.
Think of it like a digital folder which you own and can choose who can access the information. You could open it to everyone. Or select which folders people are allowed to see. Each time information is entered into a folder, a new version of the file is created with historical records archived and stored. With the original records still accessible. Records are tamperproof. Only new versions can be created.
One way of thinking about it is to think about books. Books have first editions, second editions, and so on. The original editions still exist as each book is republished.
It’s game-changing as it introduces a new level of transparency that’s never been possible before.
Can blockchain help me personally, as in my personal data?
Yes. Blockchain has enormous potential for how we protect our identities online. The technical term is decentralised identity. Think of it like borrowing an e-book from a library, companies can borrow (access) a book when they have been given permission to do so by the library (individual data owner).
And the library (individual data owner, you) can select what chapters (information/data) are shared too. Only providing the information needed for the transaction.
Is Blockchain a Cryptocurrency?
Absolutely not. And it is troubling that people regularly confuse the two. This is not helped by the fairly regular misrepresentation of blockchain in the press and by some market participants. Run a quick Google search and you will see what I mean. Mainly because the word crypto has an unfortunate reputation due to it being largely unregulated and, in turn, has attracted a number of bad actors.
Cryptocurrencies, such as Bitcoin, Ether and Litecoin to name just three, are digital currencies created using DLT. They are products, and products which are not presently subject to the same marketplace regulatory supervision as established currencies like the British Pound or US Dollar, issued and governed by a country’s central bank.
Coverage of cryptocurrencies by the mainstream media has largely been negative — not without reason. Notwithstanding the many high-profile investors, financial institutions and members of the tech community who have also been critical of cryptocurrencies. All fair and just opinions.
“Blockchain is a form of distributed ledger technology. It is technology. It is not a product.” — Louisa Bartoszek, 2030 Group
But, it’s important to remember that blockchain is a form of distributed ledger technology. It is technology. It is not a product. As a consequence of regular confusion with crypto, blockchain technology suffers reputational damage. People underestimate the sheer transformational scale of the technology, particularly to global supply chains.
Think of it another way, when talking about the process of clearing and settling currencies today through automated technology, do you ever hear the press or banks talk about the technology they use? Or financial product like a bond, an equity or a security? Do you hear about the technology used to build or trade them?
No. The focus is on the product or service, not the underlying technology. It’s therefore frustrating to see blockchain linked so visibly to crypto and cryptocurrencies. Its reputation is often tarred with the same brush as the bad actors who are abusing what the technology can do for financial services. It’s somewhat understandable as this is a new market, but very frustrating as it is slowing the pace of blockchain adoption across other markets and blinding people to its true potential in transforming operational processes.
What is the difference between blockchain and distributed ledger technology?
People are regularly confused by this; myself included until I joined 2030. Think about it in the same way as you might think about Hoover and Vacuum Cleaner. The former is a type of the latter — in this case the former (Hoover) is a brand and the latter (Vacuum) is a product.
Blocks are effectively individual blocks of data, or ledgers. These blocks are often laid out in a linear fashion, a block for each process step say in a supply chain, forming what looks like a chain of actions. A block-chain.
What’s really exciting is that distributed ledgers, or blocks as that’s an easier concept to visualise, do not have to be laid out in a chain. It can form a mosaic of data points. Presenting new ways of designing operational processes. This is why it is so transformational.
What do you mean by centralised?
Today data is centralised and stored by individual companies on their own private servers. A central database of valuable data which is attractive to hackers who want access to this data for criminal activities.
Neither you nor I know what information each company may be storing about us as we cannot see it. Nor do we know which companies are privately talking to each other and comparing their data sets. Systems are opaque and private. Which is why this data is so valuable. Not just to hackers. It’s also valuable to the businesses themselves who effectively own the information about you and me which we have provided to them. For free. But this is another topic.
Centralised systems are also inefficient as central databases owned by individual companies are not accessible outside the company. Sometimes even within a company, particularly large institutions, if it has multiple servers and databases on legacy systems. Often through acquisitions over the years. The inefficiencies are enormous, and these inefficiencies result in increased errors, increased admin, slower processing times and increase in costs.
What do you mean by decentralised?
Decentralisation means fragmenting how data is stored. Data is stored on a ledger, also known as a block, and distributed to whomever has permission to access the data.
Distributed ledgers use independent computers (techies call these nodes) to record, share and synchronise transactions — this can be financial, so paying for something, or simply just information sharing. There is no one central database. Data is fragmented into multiple locations with systems which all talk to each other. Often thousands.
This can make it sound like blockchains are chaotic with no logical order if data is scattered around the world. This is not the case. As Vitalik Buterin neatly described it in 2017, “blockchains are politically decentralized (no one controls them), and architecturally decentralized (no infrastructural central point of failure) but they are logically centralized (there is one commonly agreed state and system that behaves like a single computer).” This effectively means there are unbreakable rules and processes hardwired into the blockchain companies use to create their services and solutions.
What is a peer-to-peer network?
Also referred to as P2P, this refers to the individual computer networks that can access and use decentralised blocks of data. Those which are beginning to decentralise their data refer to the new decentralised data ecosystem as distributed architecture. Where individuals or companies (peers) can connect with other individuals or companies (peers), because the information has been decentralised and made available (distributed) to those who have permission to access the information. All parties who are allowed to access some information are equal. Able to access the information they need at the time they need it. All friction is removed.
Is blockchain secure?
Some people think blockchain is the ultimate technological advancement in cyber security. This is true, to a point. It’s important we remember that technology is not a silver bullet to solving online security issues. No technology can claim to be 100% secure. However, blockchain can help significantly improve a company’s cyber security from both external and internal threats.
Thinking about personal identities as we all increasingly conduct our lives online, blockchain can also help protect you and I as we shop, bank and communicate online.
For example, today, the default setting of almost every company in the world is to own a centralised database of customer and employee data. Centralisation of data makes the lives of hackers easier as instead of needing to jump through the security guarding several databases, they just need to break into one and can hit the jackpot. Centralised databases are honeypots for criminals. And you and I have no say in how our data is stored or protected.
Take this one step further to the distributed model and the data lies with you and me. Where we give “permission” to a company to use personal data they need to complete a transaction. Can we individually be hacked? Yes, unfortunately there are no guarantees, same as being physically attacked in the street. But the odds of your data being hacked would be significantly reduced as the decentralisation of data goes from thousands to not millions, but billions. With digital point of access being the person, not a company. One hack at a time.
Blocks lodged onto the platform are what techies describe as immutable. Simply put, this means unchangeable. They are permanent. An unalterable history of transactions. Each transaction that is verified and added to a blockchain is timestamped and embedded into a block of information. Data can only be added chronologically and with a digital fingerprint to identify who updated the data and when.
In turn, this brings more trust and integrity to the data businesses use and share every day as everyone can trust the data has not been manipulated, replaced or falsified by a company or its employees. Bringing extraordinary transparency to supply chains, audit reporting and legal disputes.
“It’s important to remember that blockchain is a mechanism for detecting untruths. But, it is not a magical lie-detector. An important element is that the data uploaded onto the blockchain has been fully verified and considered the truth before it is added to the blockchain.” — Louisa Bartoszek, 2030 Group
Is there more than one blockchain?
Yes, there is more than one type of blockchain too. There are public blockchains, like Ethereum for example, which have no restrictions with anyone who knows how to code able to write, audit and review information at any time. The second type is known as permissioned blockchains. These are private blockchains, a great example being Corda specially designed for the financial services sector, which require an invitation from the network administrator to be able to build on it.
Which markets would benefit the greatest from using Blockchain?
Almost every market can benefit from integrating blockchain into existing technology systems. Some would be completely transformed if they replaced their existing technology completely for a blockchain-based solution.
Financial services is an obvious beneficiary of blockchain transformation. Everything from how payments are processed and accelerating the speed of automation, through to the creation of new financial products, like digital twins of real-world assets such as real estate, and transparency of financial reporting.
But for me, the biggest and most exciting area has to be transparency in supply chains — agriculture, healthcare and manufacturing. Tracking the provenance of luxury goods (combatting fraud) and ethically sourced goods (ESG reporting) from grain to cup, from field to fashion house, from farm to fork.
As well as precious metals and other commodities which are traded around the world and subject to regulations. And, of course, medicines. This has become hugely relevant in light of the recent health pandemic along with medical records and how personal health data is collected and stored. Something which is a growing concern with the public around patient data privacy.
If you would like to learn how distributed ledger technologies could transform your industry, please leave a comment and follow for future educational pieces.