Earlier this year, cryptocurrency appeared to be the next big technology wave. Bitcoin rose and fell dramatically, dampening some of the buzz – but the underlying technology that is driving this innovation is fascinating and contains significant opportunities for the business community. In order to get there, it’s important to understand Blockchain.
Why would anyone trust a new type of currency? The answer is blockchain. The main reason we even have this cryptocurrency and blockchain revolution is due to the perceived challenges with the traditional banking system. For example, when transferring money, a payment could be delayed while the bank verifies it and then charges you a fee for that transaction. Blockchain developers want the ability to process payments without a need for the middleman.
Simply put: blockchain is a way of keeping a decentralized ledger that records all transactions across your blockchain network. These transactions occur for everything and are stored in an encrypted fashion without a third party involved in the transaction. Think of this as a set of data blocks (transactions, contracts, assets, identities, etc.) and each block records a collection of transactions and are linked in a specific order. Since these data blocks are decentralized and continually synchronized, it means that there is no single party that controls the data or can manipulate the data. So, lets say one business performs a transaction with another; what is great about blockchain is that they see the same set of data and all the history of those transactions. One thing to keep in mind is that a blockchain can be completely open to the public and allow anyone to join, or it can be totally private, with only certain folks allowed access to the data, or allowed to send and receive payments.
As you can see from the picture above, each party participating in the process goes through validation as well as distribution of the transactions across multiple nodes, each with a copy of the transaction. There is no way to spoof or change the value of that transaction. This allows each party involved to make sure what occurred, really occurred, during the transaction. However, there are some disadvantages to this technology.
- Validation: Every node within the network must work to verify the transactions depending on the number of nodes participating the expense of the cryptography scheme because a bottleneck.
- Consensus: Effort is expended ensuring that nodes in the network reach consensus.
- Size of the Block: As each transaction is added to the chain, it increases the size. Since every node must maintain the chain to run, the computing requirements increase with each use.
As blockchain becomes more mainstream, the development world is starting to see organizations in the following verticals implement this technology:
- Financial: Redesigning costly legacy workflows, improving liquidity and freeing up capital. Helps reduce infrastructure costs, increase transparency, reduces fraud and improves execution and settlement times.
- Healthcare: Removes third-party verifiers, such as health information exchanges, by directly linking patient records to clinical and financial stakeholders. Provides fast, secure, authenticated access to personal medical records across healthcare organizations.
- Retail & Manufacturing: Better supply chain management, smart contract platforms, digital currencies and tighter security.
- Government: Increasing transparency and traceability of how money is spent. Better tracking of asset registration, such as vehicles, and reducing fraud and operational costs.
Valore Partners is closely integrated with Microsoft, and that has given us insight into how their organization is implementing and adapting to this technology. In July of 2017, Microsoft introduced “Enterprise Smart Contracts” as well as their Coco Framework in August of 2017. In addition, the Azure Marketplace has become an open hub for developers to not only access tools and resource to accelerate blockchain development, but also publish their own templates. Microsoft’s innovation may give us some insight into how we all can benefit and/or leverage blockchain technology.
This basic summary of blockchain is from a high altitude; part one will stop here. In part two, we’ll examine encryption and transaction processing.