Blockchain and Bitcoin. They've been all over the Internet, the news and social media ever since they came to prominence in the early 2010s. But despite the fact that blockchain and Bitcoin are often invoked as technologies that should be invested in, how much does the average business actually know about them? How much does the average business owner need to know about them?
Blockchain is a young technology and like anything new, has both developed a lot of hype in some circles — where it's spoke of breathlessly — and a bad reputation in others, where it's associated with illegal actions on the dark web.
Neither of those stereotypes is entirely true, says software architect Jonathan Morley, author of That Book on Blockchain: A One-hour Intro. "Blockchain is just another technology when used correctly," he said.
First, what is blockchain?
According to its classic definition, blockchain is a decentralized, shared, immutable, chronological ledger.
It’s a database shared by a network — transactions are represented as “blocks” that are sent to, and verified by, participants in that network. After validation, these transaction blocks are added to the chain of blocks as records.
"Simply put, a blockchain is a set of information distributed amongst participants with a common interest in that data," says Morley.
Because of the ledger's design — every participant in the blockchain must agree to a change — blockchain is resistant to tampering.
"Tamper resistance is important because it leads to immediate efficiency gains," said Morley. For example, members of a blockchain network share information and are able to use that shared information to make decisions without worrying about incorrect or inconsistent data.
What should blockchain be used for?
Blockchains can used in both public networks and private, internal networks, and they work very well for some specific use cases.
Because blockchain works well for sharing information, large blockchain networks are an ideal infrastructure for finance and the exchange of cryptocurrencies. Bitcoin is the most well-known of these but there are several types of cryptocurrencies exchanged via public blockchain networks. Morley outlined a few more use cases for blockchain technology:
- Sharing information: “Whenever you need to share information that shouldn't change unless everyone agrees to change it, you should use a blockchain,” said Morley. Financial transactions are an example of this use case. When you buy something with Bitcoin, you need to share that information. Blockchain provides a permanent record of the transaction (and does so indefinitely).
- Automated processes based on information from the blockchain: Because a blockchain produces a set of data you can trust, it's possible to build automated processes that make decisions based on that information. For example, prediction markets — markets in which people bet on the outcomes of events — can use blockchain to manage both event outcomes and respective payouts to winners.
- Record verification: Blockchain doesn't have to be used for finance. A blockchain network can also be used to verify a person's identity, vital records or other personal information like education credentials. The more competing entities in this network, the more you’ll be able to trust it. For example, if a group of universities forms a blockchain to verify credentials, a simple search can prove to an employer that a job candidate did in fact graduate from Harvard — after all, Yale — a natural competitor of Harvard — is one of the universities that agrees this is true.
In fact, Dubai is using blockchain to verify all of its government records, and has pledged that by 2020 it will be the first blockchain-powered government.
Decisions like Dubai's lend legitimacy to blockchain, a technology that often gets a bad rap because it's so young. Morley predicts we will see more credibility given to blockchain and cryptocurrencies over the next few years: the more than 1,000 cryptocurrencies will begin to consolidate and governments — some of which only a few years ago tried to ban Bitcoin — is starting to regulate blockchain.
Why you need to understand blockchain?
“Simply put,” says Morley, “business owners need to understand what blockchain is in order to know whether you should invest in it or not.”
Often, when a technology achieves the sort of buzz blockchain has, businesses think they have to invest in it or risk being left behind. That might be true of certain technologies, like the cloud, for instance, but it's not the case with blockchain.
Blockchain is not a one-size-fits-all solution. While the security aspect of blockchain may tempt business owners to leap into blockchain adoption, the sharing piece should give them pause. Not every business needs to share their database, and that's what blockchain is — a shared database.
"That's a hard pill to swallow, because a lot of companies are throwing money into it," said Morley.
Sometimes, the work a company wants to accomplish using blockchain is simply not a good fit for the technology, or that work can be accomplished more simply with a traditional database. If that's the case, companies will waste time, talent, resources and money implementing a blockchain when they don't necessarily need one.
Ready to implement blockchain in your organization? Omni's experts can educate your employees about blockchain use cases, design a ledger that works for you, or help you implement a blockchain strategy. Contact us to begin leveraging the benefits of blockchain.