Blockchain is bigger than bitcoin
Over the past few months, cryptocurrencies such as bitcoin have been the talk of the town, inspiring commentary verging on hyperbole. When valuations soared toward $20,000 per bitcoin the commentary seemed apt, and despite the recent plunge in value there are still many influential voices who believe the cryptocurrency will supplant existing media of exchange. Twitter CEO Jack Dorsey was quoted recently in The Times of London as saying that “[t]he world ultimately will have a single currency, the internet will have a single currency. I personally believe that it will be bitcoin.”
It is unknowable whether cryptocurrencies are going to be digital bullion or a modern-day version of the tulip mania that gripped Europe in the 17th century. Having said that, we should not allow the crypto-craze to obscure one thing that seems more certain: the technology that cryptocurrencies are built upon — blockchain — is here to stay. It has a variety of applications across multiple industries and is potentially one of the most disruptive technologies currently under development.
Understanding the applications of blockchain requires that we appreciate how it works and what it does differently than the technology currently utilized. At its simplest, blockchain is a system for organizing and storing data in chronological order. If this sounds like what an old-fashioned ledger does, that’s because at its core blockchain is an electronic ledger. What makes it revolutionary, however, is the open, distributed nature of the so-called ledger book.
Blockchain gets its name from being made up of a number of “blocks” of data. Each data block represents a single, distinct data point or a series of data collected simultaneously. Each data block includes a date and time date stamp. The blocks are then sequentially linked together into a chain by “hash” identifiers, typically an alphanumeric sequence of a designated number of characters that is generated by running a data set through a hash-generating function. Each block includes the hash identifier of the previous data block in the chain. This provides safety against the unauthorized modification of data blocks because if the original data of a block is altered, the hash in the next block would not be the same and it can be determined that the data in the block is not original and has been modified. In effect, this operates as an automatic authenticator of changes in the data set.
While the block-and-hash mechanism provides the “ledger” function of the technology, there is another key component of blockchain — it is built upon a decentralized and distributed network where a copy of the blockchain is saved on a number of storage nodes instead of a centralized server. An identical copy of the blockchain is maintained through a syncing function, which updates and syncs the data on each node at a given time interval. Syncing may include repeating the hash function for some or all of the blocks to authenticate that the data in a block has or has not been changed.
From a legal perspective, blockchain offers four discrete benefits:
Data security — Conventional centralized networks, data storage, and access systems are far more vulnerable to theft and tampering because data is stored in one location and accessed from many. If a hacker can access or infiltrate that one single location, the hacker can steal or sabotage the data or take it hostage.
By contrast, the decentralized nature of blockchain requires a hacker to infiltrate each and every node to effect a permanent change in the blockchain before the blockchain syncs. In addition, because there are numerous copies of the blockchain simultaneously maintained, there is little worry a hacker can hold data hostage. New ways to secure the blockchain are currently being developed and implemented from a fresh perspective, especially now that blockchain technology and platforms are seeing an increase in adoption rate.
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Data authentication — Validating electronic data has been a challenge as it can be permanently altered without detection fairly easily. In many applications, having altered data can be worse than having the data stolen in the first place. The decentralized and distributed nature of blockchain provides protections of the data’s authenticity. Further, a blockchain’s use of hash identifiers in each block allows proof that the data in the previous block is authentic as the hash function can be re-run to confirm that the underlying data has not changed.
Transparency — Access to the blockchain can be restricted, and each action by a user of the blockchain is tracked; therefore, one can detect and track any dubious access of the data or actions to the authorized user’s account. While it doesn’t fully thwart someone gaining access to the blockchain without authorization, it may quickly help to identify the entry point.
Control of access — In some blockchains a consensus of users must be attained prior to a block being added to the blockchain. Because blockchain is decentralized, it can be set up for peer-to-peer transactions, and applications can be set up to regulate access to authorized users. In addition, data collected and stored in a blockchain is permanent, and blockchain platforms can incorporate programming to provide some automated actions to occur using the very dataset it is storing. Furthermore, blockchains can be public or private in that safeguards may be implemented to control various levels of access to the data.
Many forecast blockchain technology will be universal in the very near future. The inaugural blockchain applications are just getting implemented, but most software developers and companies are still trying to create applications for this technology and to more fully comprehend how the application of blockchain technology can improve current business processes, create new efficiencies, and help create new revenue streams.
While the application of blockchain technology in the marketplace is in its early stages, data-driven industries stand to reap several benefits. Blockchain offers many advantages over traditional data storage and electronic record keeping. Seizing these advantages may make transactions more efficient, streamline record keeping, allow the maximization of revenue from data licensing, and help meet your contractual obligations without having to do anything to fulfill your contractual obligations after the contract is initially defined.
Bob Bowman is a Denver-based technology attorney in Husch Blackwell’s Technology, Manufacturing and Transportation group, where he is co-leader of the internet of things practice area.
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