Blockchain and the potential impact on the IT Channel

To understand how blockchain works, let’s use an example of a simple blockchain network that tracks money transfers between users.

Suppose Bungle wants to send Zippy 10 Rainbow Dollars on the network. Here are the steps that would happen:

• Bungle creates a transaction that specifies the amount and the recipient of the money. He signs the transaction with his private key, which proves his identity and ownership of the funds.
• Bungle broadcasts the transaction to the network, where it is validated by other nodes (computers) that run the same blockchain software. The nodes check that Bungle has enough Rainbow Dollars and that the transaction follows the rules of the network.
• The validated transaction is added to a pool of pending transactions, waiting to be included in a block.
• A node that wants to create a new block, called a miner, selects some transactions from the pool and tries to solve a mathematical puzzle that involves hashing (a process of generating a unique code from some input). The puzzle is difficult to solve but easy to verify, and it ensures that only one block can be added at a time.
• The miner who solves the puzzle first, broadcasts the new block to the network, which contains the selected transactions and a hash (a unique fingerprint) linking to the previous block. The other nodes verify that the block is valid and append it to their copy of the chain and it becomes part of the shared ledger.
• The block is now part of the blockchain, and Bungle’s transaction is confirmed. Zippy receives the money and can use it for his own transactions.
• The more blocks that are added after the transaction’s block, the more secure and irreversible the transaction becomes.

Blockchain has many advantages over traditional databases or centralized systems, such as:

• Security: Blockchain uses cryptography and consensus to ensure that only authorised users can access and modify the data, and that no one can tamper with or delete the records.
• Transparency: Blockchain provides a public and verifiable record of all transactions that have occurred on the network, which increases trust and accountability among the participants.
• Decentralisation: Blockchain does not rely on a single entity or authority to control or manage the data, but rather distributes it among multiple nodes that cooperate and compete with each other. This reduces the risk of corruption, censorship, or failure.
• Innovation: Blockchain enables new possibilities and applications that were not possible before, such as smart contracts (self-executing agreements), digital tokens (representations of value or ownership), and decentralized applications (services that run on the network).

Thirty years ago, the options for private individuals to sell their second-hand goods was limited to a local market via newspapers and market stalls. Along came eBay with a set of tools to allow nationwide/global marketing and tools to protect buyers and sellers to enable trust in transactions between two parties who had never met. Blockchain takes this concept to the next level providing strong identify management, proof of asset ownership and an undisputable/immutable record of the transaction. There are many business areas that we can identify and many more as yet unforeseen scenarios that could benefit from this technology, as outlined below.

• Supply chain management: Blockchain can enable more efficient and accurate tracking of goods and materials, from their origin to their destination, reducing costs and risks of fraud, theft, or human error.
• Smart contracts: Blockchain can facilitate the execution of self-enforcing contracts that are triggered by predefined conditions, such as payment, delivery, or performance. Smart contracts can reduce transaction costs, increase trust, and enhance security among parties.
• Digital identity: Blockchain can provide a decentralized and immutable way of verifying and managing one’s identity online, without relying on third-party providers. Blockchain can also enable more control and privacy over one’s personal data, as well as more secure and convenient access to various services. This aspect could become a core tenant of any process requiring identify confirmation from person and business transactions through to voting systems.
• Financial services: Blockchain can enable faster, cheaper, and more inclusive access to financial products and services, such as payments, remittances, lending, insurance, and asset management. Blockchain can also create new opportunities for innovation and competition in the financial sector, as well as new challenges for regulation and governance.

• Healthcare: Blockchain can enhance data sharing, privacy, and security of medical records, prescriptions, research, and more.