This blog is the first in a series about blockchain. When I started at Clabby Analytics, blockchain was one of the first technology trends that caught my attention. I became interested in security and fraud detection in an internship at JPMC, while attending the iSchool at Syracuse University. I would like to start a dialog around blockchain with vendors and users. Please contact me if you would like to contribute or share your blockchain experience.
What is Blockchain?
As with many emerging technologies, people define blockchain differently depending on their perspective. Businesses, industry experts, and technology leaders are all circling around the concept in an effort to define what blockchain is and what it can do.
So let’s start with a simple definition. Blockchain is a distributed ledger technology that allows the transfer of both money and data transparently, while remaining auditable, safe, and resistant to outages and hackers. Organizations that use blockchain have the ability to create more visibility into transactions while making those transactions more efficient and secure.
Notably, Bitcoin is the largest blockchain implementation to date, and it has received a significant amount of media coverage because blockchain technology was integral to its success. Bitcoin became a $40-billion-dollar use case of blockchain, and now companies are creating initiatives around blockchain to determine how they can implement it in their businesses. Emerging technologies such as blockchain can be disruptive, posing a great threat to the way a company does business. In order to competitive, businesses need to understand the significance of blockchain and how to implement the technology for maximum benefit.
Background –Technology Gaps
So why do we need blockchain? Richie Etwaru, industry expert, speaker, writer and current Chief Digital Officer at IQVIA, provided a great explanation in a 2017 TedTalk (put link to his talk in here). According to Etwaru, over a span of many years, innovation has filled technology gaps, giving people the tools to make the world more efficient. In the 1400’s, the printing press filled the knowledge gap allowing information to spread from person to person faster than ever before. In the 1800’s, the power gap was filled by engines and machines. Machines replaced manual labor jobs and even slavery, and at the same time did the job more efficiently. Computers and the internet filled a distance gap, allowing information to circulate around the entire world instantaneously. Today, blockchain is filling a new gap, the trust gap. Business transactions are based on trust. In any given year, seven million individuals are making over one trillion dollars worth of transactions. Most of these transactions have some sort of a ledger involved. Think of this ledger as a history of events that have happened that may affect your decision to purchase a product or service.
For example, imagine buying a used car based on a vehicle history report from a business that prides itself on providing a detailed history of every incident, oil change, tire rotation, and other car related maintenance. What if the information provided was inaccurate? How would you feel if you learned your car had been in two fender- benders that weren’t included in the records? I know I would feel hoodwinked and not be able to trust that reporting agency. Blockchain can prevent this type of fraud from happening.
How does it work?
Unfortunately, it is relatively easy to add or remove records in a traditional ledger, leading to a situation such as the vehicle example described above. The ledgers that we use today (pre-blockchain) to manage transactions involving a car, house, or any other kind of property, are easily altered to make something seem more desirable to others. If a ledger indicates that a house on the market had a new air conditioning system added, for example, or another improvement not easily detected by the average consumer – then the property may be overvalued. Unfortunately, traditional ledgers are tampered with everyday.
The difference with Blockchain is that each individual transaction has a key. With each new transaction, Blockchain maintains a record of previous transactions, hence the term “chain.” If a transaction tampered with, every stakeholder associated with the chain is aware of the change. Each stakeholder also has a record of the ledger, and of any changes that are made. If anyone tries to change a record, that individual or business is essentially kicked off the block, and the original record replaces the tampered record. Behind the scenes, there are consensus algorithms that detect tampering and ensure that entries to original ledger aren’t changed or deleted. Over time, Blockchain ledgers between different parties will replace the need for trusted intermediaries (such as banks, credit unions etc.), while still keeping data and transactions safe and secure.
What others are saying about Blockchain:
According to IDC, in the company’s first Worldwide Semiannual Blockchain Spending Guide, spending on blockchain will reach $2.1 billion in 2018, more than twice the $945 million spent in 2017. Over the next five years, IDC is forecasting a compound annual growth rate (CAGR) of 81.2% with total global spending at close to $9.2 billion in 2021.
Martha Bennett, Principal Analyst at Forrester Research recommends caution in a November 2017 report entitled, Predictions 2018: Be Ready To Face The Realities Behind The Blockchain Hype, stating “Forrester sees 2018 to be the year of reckoning for blockchain initiatives. Those who failed to translate the headlines into reality will write off their investments and give up, while others that have a deep understanding of the technology and its transformational potential in the long run will continue to forge ahead.”
At IBM Think 2018, Andreas Kind, Manager Industry Platforms and Blockchain, IBM Research, shared some of his thoughts on blockchain and crypto- anchors, cryptographic mechanisms that can be used to prevent fraud and the proliferation of counterfeit goods. According to Kind, the total value of counterfeit goods in 2015 totaled 1.8 trillion dollars, and 40% of parts in the automotive aftermarket are fake. With Blockchain and crypto-anchors, Kind contends that the number of counterfeit goods related to health and safety issues can be reduced by half over the next five years. (Stay tuned for a future blog to hear more about crypto-anchors and follow Clabby Analytics on social media for updates from IBM Think 2018).
David Birch, Director of Innovation at Consult Hyperion, says identity fraud is completely out of control and blockchain could help in the identity space. In David’s eyes, blockchain could potentially allow more internet visibility, stating,“We need a solution fairly quickly because we haven’t fixed the identity problem for people but we are about to put billions of things on the internet.”
Patrick Byrne, Overstock CEO, has been huge advocate of blockchain for business saying, “There is an opportunity to recreate the financial world as we know it in the parallel universe that is the blockchain. We are writing rules for this whole new universe.”
Major banks and financial institutions including Fidelity, see the potential blockchain has to change every transaction that occurs in the world on a day to day basis. Abigail Johnson, Fidelity CEO, said recently, “Blockchain technology isn’t just a more efficient way to settle securities. It will fundamentally change market structures, and maybe even the architecture of the Internet itself.”
In my next blog, I’ll talk about Hyperledger, an open source project hosted by the Linux foundation to advance cross-industry blockchain technologies. In the meantime, let me know your thoughts on my first blockchain blog. What do you think about blockchain? Does your business have any current or planned blockchain initiatives? How will blockchain benefit your business?
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