Cryptocurrencies have generated plenty of histrionic headlines lately, but an important part of the story rarely gets much explanation in the financial pages. Underpinning many of these new digital currencies is a very different type of computational infrastructure: blockchain.
Blockchain is the technology stack or enabler behind cryptocurrencies such as Bitcoin. And regardless of whether cryptocurrencies turn out to be an enormous bubble, the underlying blockchain technology has indisputable and genuine value. In one form or another, blockchain will have an enormous impact on how digital business gets done long into the future.
For the uninitiated -- a blockchain allows anonymous participants to digitally exchange value across a completely decentralized network, and to do so securely and with trust. Immutable distributed ledger technology, cryptographic hashes, smart contracts and consensus are key components of a blockchain, as demonstrated by the popular cryptocurrencies of today.
However, the same components have applications across a number of unrelated verticals, including finance (the obvious first choice), health care, government, supply chain, manufacturing, logistics and many others. In many ways, and especially in a private and permissioned (or consortium) context, blockchain may be thought of as a next-generation distributed data-management platform. There is no central authority or central storage entity -- the entire model functions on a peer-to-peer basis. The consensus checks and immutable nature of blocks added to the chain ensure veracity and enable trust among network participants. And contracts written as lines of code enable the provision and execution of automated and embedded business logic within the blockchain.
Current non-cryptocurrency blockchain deployments are typically very use-case specific. Managing asset provenance via blockchain (for example, tracking perishable food as it moves from “farm to table”) is increasingly popular. IBM recently introduced its TrustChain, which utilizes blockchain to verify a jewelry supply chain from mine to store, and various businesses are investigating the model as a way to improve overall transaction interactions and reduce costs by eliminating third-party intermediaries and digital middlemen.
Smart contracts provide a key component of business-focused blockchain solutions, as the ability to embed logic (via code) into a network for automatically handling transactions among participants is extremely attractive. One area of immense future potential is the application of blockchain in the internet of things (IoT) space. Blockchain is perfectly suited to solve IoT issues such as device identity and security by automatically and immutably tracking code running on smart devices. Blockchain could even facilitate IoT micropayments (where devices can “pay” each other for capability or functionality directly based on smart contracts). This type of automation has the potential to drastically change our world.
Blockchain has even led to new ways of looking at the very concept of identity and, in particular, decentralized digital identity for both individuals and entities. The Decentralized Identity Foundation (DIF), for example, aims to “help individuals and organizations to control their digital identity, without being dependent on any intermediary party.” You may have also heard about Microsoft’s recent embrace of decentralized identifiers and identities, with promises to add support for them in Microsoft Authenticator.
These are all exciting developments, but blockchain isn’t perfect. The technology is still rapidly evolving to address inherent shortcomings, such as performance and scalability (as typical consensus approaches utilized over the distributed networks can be notoriously slow). And at the moment, there are seemingly endless choices of proofs, platforms and approaches with little standardization. This makes adoption challenging, especially when the potential benefits are not always fully understood.
Even with all this uncertainty, there will be a steady uplift in the number of blockchain projects deployed throughout the coming months and beyond. Its benefits are too attractive to ignore from both a technical and business standpoint. Companies that do not at least understand the technology are in danger of being left behind.
There are many who believe that blockchain has the potential to impact our world in ways similar to the transformation brought about by the internet. There is a good argument that blockchain is similar in potential to TCP/IP, the suite of network protocols that enabled the World Wide Web. Like TCP/IP, blockchain enables open, shared public networks without central authorities or entities responsible for maintenance and improvement. Further, the technology enables networks that bring trust into a potentially trustless environment, allows for operation in a completely decentralized (but secure) fashion and enables organizations to automate and streamline business operations with previously unattainable efficiencies.
At the very least, blockchain presents a new paradigm for digital transactions and opens up new business models. Even if Bitcoin vanishes into the ether, blockchain is here to stay.
