Ten Tips to Better Understand Blockchain
Are you totally confused about blockchain – what it is, what it does? You've read a few articles, had discussions with several people, but you're still missing the point? There's so much buzz, but it's hard to understand if there is any value among the hype for you or your business? Then believe me, you are not alone, and this article might be for you.
Blockchain-based technologies have tremendous disruptive potential, and if we overlook them today we will probably find ourselves surprised by those who didn't. The first known use cases have already demonstrated the potential to speed up some particularly complex processes, save costs related to difficult problem resolution, and provide transparency for competing parties that need to cooperate, whereby they can use blockchain as a third-party authority.
There are many reasons why is blockchain not easy to understand. In this article, you will find a summary of my personal experience from speaking with clients, business partners, and colleagues. From these interactions, I have observed several common points of misunderstanding.
The original author doesn't officially exist
It may seem kind of an absurd way to start, but one of the first facts you should know about blockchain is that the whole concept was introduced by a mysterious and officially non-existent Satoshi Nakamoto as a platform for the first well-known cryptocurrency, Bitcoin. It's possible to find a new article each month about who Satoshi Nakamoto really is, and I would be surprised if the famous Czech genius Jára Cimrman isn't included among the list of suspects.
In addition to having no clue about the origins of the concept, we also have no point of contact for getting more information about the author's original academic, political, or personal motivation . While the idea of digital or virtual currencies based on crypto techniques or peer-to-peer networks existed before the appearance of Bitcoin, Bitcoin was the first, widely adopted, end-to-end solution. The elusive Nakamoto essentially spawned the ongoing revolution of how we look at money, value, and trust.
One positive result is that, since the beginnings of Bitcoin, many other inspired and improved platforms for cryptocurrencies and blockchain technology have emerged, and new ones are coming. Unlike Bitcoin, their creators are well known, and some of them are officially supported by leading multinationals. This leads to many opportunities, right now, for us to start using an enterprise-class blockchain solution that is affiliated with one of the tech giants.
One consultant shared with me his story of visiting a very successful bank and meeting with very well educated people — five times — before they understood what blockchain technology (without a focus on cryptocurrencies) could mean for their operations. It took five separate days of effort and five inevitable headaches to clarify their misunderstandings and misconceptions in order to eventually shape a proposal that conveyed meaningful value.
He told me this, and I was not surprised. Even when I speak with people who have been in the cryptocurrency business for several years already, they sometimes need a while to get the point of a new blockchain use case. This is especially true of technical people with a deep understanding of how it works, down to the very last detail; it becomes extremely difficult for them to imagine non-cryptocurrency use cases. You might say it's a case of missing the forest for the trees.
In the realm of blockchain, we work with some very new and unintuitive concepts, even if they are built on basic, easy-to-grasp parts which already have some history on the market. I have personally been following this area of tech for several years, and yet I am constantly surprised by every new use case. The technology is always evolving into many varieties and modes… learning "on the go" is the norm with blockchain, and many surprises are still in store.
Bitcoin, blockchain, and cryptocurrency
Bitcoin is just one example of a cryptocurrency. There are many others, and today you can create your own, brand new currency if you need one, in just a couple of clicks.
Blockchain is a consensus algorithm and a type of distributed ledger that contains unchangeable digital data. In the case of cryptocurrencies, blockchain typically confirms and stores financial transactions, while making the history transparent for the users. It is designed to be practically impossible to change the transaction history, thanks to the cryptographic techniques in place. This means that stored and confirmed information can not be changed unless you have majority control over the network.
If you were to have control over the network, then you would be the authority; therefore, you wouldn't need the blockchain based solution. You could easily modify anything and the sense or purpose of the whole network would be lost.
Business value of blockchain
Although cryptocurrency has been the main star in the blockchain spotlight, completely non-monetary information can also be stored in the closed network. Owing to the heightened levels of trust inherent in blockchain, the technology is particularly suitable for information about shipments of goods, occurrences of epidemics, or votes during an election (for example).
How does it differ from storing the transactions in a normal database? A traditional database is owned and maintained by a single organization. The blockchain solution is based on sharing the data with other parties. There is no dominant owner. The blockchain technology itself establishes the digital platform for trust and can act as an independent authority.
Looking for the blockchain value? Just zoom out
A typical question at this point might be: What can blockchain offer my business? The short answer is: blockchain typically leads to faster and less expensive problem resolution, particularly when dealing with multiple players or partners. It does this by enabling greater transparency and faster access to information.
If you focus solely on your business, then the benefit is harder to find. If you zoom out and view your business in the ecosystem of all the other businesses you deal with, your partners and your customers, then you will be able to see the tremendous value of blockchain in terms of cost reduction.
Examples in the real world
As has been greatly discussed in both the tech and baking circles, cryptocurrency enables digital monetary transactions with high levels of trust without a bank. No bank is needed to store or transfer the digital money.
Non-monetary examples include any situation where having a shared history of events is desired, such as patent registrations, establishment of digital identities, or a patient's medical record.
Without blockchain, probably the strongest member or an independent third-party committee would run a database for all the other members. But could the other members trust the strongest one? Wouldn't that case enable the strongest player to enforce and regulate conditions for all the others?
Interested in more examples? Feel free to write to us and have a discussion on how blockchain can be applied in your industry.
Blockchain can help where there is no external authority or it would not be feasible or economical to establish one. Blockchain itself would be that authority.
Blockchain and cryptography
In many articles about blockchain, you can read that something has been secured using cryptography. If you are not a security expert, it might be confusing for you. Cryptography evolved over the last century from encrypting a message by a password to a huge discipline that spans completely new topics such as public key cryptography, digital signatures, and hashes.
When we speak about the security of blockchain transactions, we mostly mean that nobody can easily change them. It is designed to make fraud practically impossible. Blockchain gives you complete visibility of your entire transaction history. Some people imagine that the information in the blockchain is encrypted, and therefore nobody can read it. In some solutions, data encryption is possible, but the key pillar of the blockchain concept is the transparency of data it provides for all users involved. Unless you can easily see what is in the blockchain, it wouldn't serve the purpose for which it was designed.
Blockchain as a tool
Like a hammer and nails used to build a house, blockchain is just a tool. What you build with it depends on you and your needs.
In the case of blockchain, you also need few other tools — specifically, a network of computers with sufficient storage and power. But what it's possible to do with these tools is still not very clear. Early use cases clearly show us that it can act as a substitute for existing or missing authorities. We can also look forward to use cases that would never have existed without this disruptive technology. The continuous innovation of blockchain-based solutions will no doubt surprise us every day.
How to speak with technical guys
Chances are you'll have an opportunity to speak with someone with a deep technical understanding of blockchain. I suggest that, instead of asking him how it works, look for some blockchain case study from your industry and ask him how would he build the blockchain solution for the ecosystem you are part of and what benefits it would have for you and all the other members.
If you still find this difficult, feel free to contact us for advice or assistance.
Taking your very first steps
As mentioned earlier, it will help to look at your organization from a broader perspective: how it fits into a broader ecosystem from both a legal and business point of view. Define the critical interactions and the data needed for these interactions. If each member had access to the same data, would it speed up processes? Would it be more transparent from a legal standpoint?
If you want to discuss a strategy with us regarding how blockchain might be used in your business, feel free to get in touch:
Senior Marketing Manager for CEE and CIS
- Satoshi Nakamoto Bitcoin: A Peer-to-Peer Electronic Cash System, https://bitcoin.org/bitcoin.pdf
- Blockchain and Distributed Ledger Technologies – Use Cases and Impact on Markets in Europe https://www.idc.com/getdoc.jsp?containerId=EMEA42456417
- Blockchain Spending Guide, to be published in February 2018