As I speak to numerous business decisionmakers, technology leaders and consulting experts, I notice a strong bias towards theoretical knowledge about blockchain. Everybody knows about blockchain in relation to bitcoin, arguably its most successful and viral by-product. Almost every leader I’ve met was aware of the definition of the blockchain and seemed to understand the revolutionary aspect of the technology. They all knew that the decentralized nature of the blockchain is what makes it successful in managing the most precious of human behaviour: Trust.
However, very few of the leaders I spoke to were aware of the real dynamics of the technology and while theoretically, they could think of business cases in which blockchain could be applied within their business, the practical aspects of deploying blockchain in a relevant way were missing.
This is what drove me to start learning about blockchain in its practical sense:
How does one use the blockchain in a real world scenario? How does one build an “application” using the blockchain?
There are two aspects that I should highlight before we dive into the actual series. My learning is specifically from a business application scenario and not from a cryptocurrency viewpoint. While it can be argued that a cryptocurrency is an application of the blockchain, there are probably many resources available online which with the subject of much greater authority. The focus of this series of blog posts is to experiment with blockchain as a technology and understand how it can be used in business scenarios.
The other aspect is that I am not a blockchain expert nor am I a seasoned programmer. I approach blockchain as a novice would and these are the notes that I make as I studied blockchain and work with it. While I have some experience in programming and I have some experience with cryptography, I approach the subject of blockchain as a complete newcomer. As a result, it might be possible that part of this series might be completely amateurish and at some places even erroneous. I request the reader keep this in mind while reading the posts and be gracious enough to point out any errors which I promptly correct.
So having said that, let’s begin!
What is the blockchain?
The simplest technical definition is as follows:
The block chain is an open, distributed and encrypted ledger of digital transactions.
Let’s consider the following story of three friends: Jack, Bill and George. All three of them are very financially disciplined and each of them records any transactions between the three of them in a little book that each of them has.
One day, Jack gives Bill $100 and George is also present. Promptly, each of them makes a record of this transaction in their respective books (ledger). At any point in time, if there is a question about any transaction, the friends can refer to each other’s book and keep their book updated. Thus each of them has an updated copy of the transaction record at all times (distributed ledger).
Now, it is possible that any one of the friends, say Jack, tries to change a record to show a different value in his book. But as the books of the other two friends do not show this record, it is quickly found out. This is the concept of trust inbuilt into the system.
Let’s say George and Jack together decide to change their books to reflect a fraudulent value. Then it is possible that Bill can be convinced that his book entries are wrong and a fraud can be committed. Hence if a majority of the distributed ledgers are modified, a wrong transaction can be passed off as a correct one. Remember this loophole in the system, we will revisit it in a short while.
What if someone other than the three friends decides to change any one book? While a single book change will be caught, the three friends are paranoid and record their transactions using coded symbols that only they can read (encryption). This makes the transactions unreadable to someone outside the friend circle and hence difficult to modify.
Now finally, let’s make the circle of friends bigger, all of whom record the transactions happening within the group in coded symbols that only they could read. Remember that loophole we talked about? As the circle of friends grows, then the chances that a majority of these friends changing their ledgers simultaneously to create false records, are much smaller.
And that is what a blockchain is about. A large, connected group of nodes maintaining a synchronised digital ledger of encrypted digital transaction records.
Each of these records is a digital block of data, arranged in a chronological sequence to create a chain of blocks, called a Blockchain.
In Part 2, we will look at the different types of blockchain and where they might be typically used. We will also see the main advantages of a blockchain.
I know that was very simplistic. I’ll be happy to hear all your comments.