Ting Hsuan Lin | September 27, 2016
There’s been a lot of coverage in the technology press recently about an emerging technology garnering a lot of interest in multiple industries: blockchain, and it’s ecosystem. There are still some limitations with the technology before it is widely accepted and deployed, but in some industries (for example, banking), initial testing has proven to be successful.
Even though there are disadvantages, and gaps requiring closure, the fast developing blockchain ecosystem is addressing these for closure to drive further blockchain adoption and deployment. Let’s begin by looking at some of the key terminology and the common definitions in the blockchain ecosystem.
Bitcoin: A decentralized payment network that successfully uses and leverages blockchain technology. Bitcoin is a digital currency created in 2009. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government issued currencies.
There are no physical bitcoins, only balances associated with public and private keys. These balances are kept on a public ledger, along with all bitcoin transactions that are verified by a massive amount of computing power.
Blockchain: A web-based distributed ledger system in which applications can be built upon to increase data integrity and control, provide time-stamped verification and attribution, and increase efficiencies through automation. A blockchain is a public ledger of all bitcoin (cryptocurrency) transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. Each node (computer connected to the bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network. The blockchain has complete information about the addresses and their balances right from the starting block to the most recently completed block.
The blockchain is seen as the main technological innovation of Bitcoin, since it stands as proof of all the transactions on the network. A block is the ‘current’ part of a blockchain, which records some or all of the recent transactions, and once completed goes into the blockchain as permanentdatabase. Each time a block gets completed, a new block is generated. There are a countless number of such blocks in the blockchain. Blocks are linked to each other (like a chain) in proper linear, chronological order with every block containing a hash of the previous block. It is very important to note that bitcoin is enabled by blockchain technology–they are not one and the same. Think of blockchain as the pipe, while bitcoin is the water. Or, in another way, blockchain can be visualized as the road, and bitcoin as transportation travelling the road.
The movement towards decentralized computing
Technology and computing is moving more towards a decentralized model, as consumers want more control of their digital assets. Decentralization technology allows assets to be stored in a network of computers accessed via the Internet. Blockchains inspired and triggered ideas about moving not only cryptocurrency (i.e. Bitcoin) on decentralized networks, but also any digital asset (art, music, written content, photographs) that would benefit from Blockchains inherent characteristics and benefits.
Decentralized communications via the Internet was the first step in giving individuals more power and control over the information they consume. Next, the elements of computing (communication, processing, storage) are all moving in the direction of being decentralized, and a new decentralized stack is available now in the blockchain ecosystem. An excellent description and reference example of this new decentralized stack can be seen in this LinkedIn post from Bruce Pon, Founder / CEO at ascribe GmbH.
Decentralization of computing and blockchain specifically, has identified initial advantages and disadvantages:
Initial advantages of blockchain
Blockchain application platforms that are being developed now and delivered (for example ERIS, R3CEV) which are providing the “business rules” engines that blockchain provides to bridge new transparent, secure, audible, transparent business models to IT. This decentralized stack and improved blockchain ecosystem of course, benefits the CIO in their charter–faster delivery for the business, more secure transaction processing, reduction of costs, and tighter alignment and adherence to regulatory needs. Integration to existing systems is still a challenge, but not insurmountable, and can be justified based on the advantages of blockchain based on business and IT needs.
Throughout my career I help my teams and clients determine the reality of technology, and how it may be used and applied to solve “real” world business problems, whether they “are” or “have been”, but also ideally, that may, can, or will exist.