The term Block Chain is often bandied with various other terms like “distributed ledger”, “smart contracts”, “mining”, “crypto currencies”. What do they mean?
What will happen to incorrect data, accidentally stored?
How to correct the immutable chain?
If there is a way to fix the data, wouldn’t it be in contradiction to the concept of immutability?
Let’s try to get some answers around these queries.
When cars were first invented, they were called as horseless carriages. Any invention, in its initial release state, is often compared with the nearest service that it would be rivalling or replacing. Likewise, Block chain, if at all can be renamed, could well be called as “Ledger on the net”. With the ever rising rates of BitCoin, one particular area where Block chain can be implemented is already well renowned. But other than crypto currencies, there are lot many areas where the concept of Block chain is creating revolutionary ripples, having far reaching implications. Whichever may be the area, the primary function of Block chain being, to remove intermediaries between interested parties and raise the possibility of increased trust and shortened transaction duration.
As mentioned previously, Block chain is nothing but a ledger, managing transactions. Would one want to reveal the contents of their personal ledger? We share the details of our cheque book not with all and sundry but would primarily be restricted with our spouse, parent or partner. With Block chain, the transactions are going to be shared with lot many person of interest.
Doesn’t that mean, private information would be made available to general public?
But in the form of anonymity. The name of the interacting parties would be anonymous or under pseudonyms, with only the raw transaction information being available on the public ledger. In case of the Block chain itself being private, the parties may well be revealing their identities. In a nutshell, it keeps the parties anonymous and the transactions public.
When a transaction is posted on the network between two parties, other nodes on the network compete to solve a mathematical proof that locks that transaction into everybody else’s ledger as well. So if you wanted to go back and hack the Block chain ledger, you would have to undo every single other prior transaction. And that proof of work and the chain aspect of the block—a block is a transaction—is chained to all prior blocks, is what makes this the interesting technological innovation that the Block chain is.
The next immediate question would be, how might an organization use something like that to make part of their work easier or more secure or otherwise better?
A good example of this can be found in what’s happening in the financial services industry. If you imagine, it takes us seconds to do a stock trade. If we are going to buy a certain stock and then going to sell certain stock, that record happens instantaneously. The marketplace handles hundreds of millions of transactions a day. But the settlement, like the fact that now the securities are going to change ownership, can take days. Right now, we have all these intermediaries that play the settlement role, that verify if the money has transferred over, that the securities transfer over– all that, can actually be put on the Block chain. We can put both the cash that person A has and the securities that person A has, along with the cash that person B have and securities that person B have on the public ledger. And then we can do it as a transaction across the two of them on this public ledger that takes place. So the settlement can also be instantaneous instead of taking multiple days. And that massively reduces the friction that takes place in financial services.
Supply chain could well be the next area where Block chain may be a major player. The problem with supply chains is one of trust. We do “trust” a company saying that this has been ethically sourced, organically sourced, non-GMO sourced, or without child labor etc. One has to actually rely on the brand and the brand’s promise, and hope that they’re doing the right thing because right now it’s actually impossible to look at a mango that one has bought from store and know whether it was actually grown in an organic farm, where and when and how it was shipped to the store.
So the notion and the promise of Block chain is to say, every single transaction, from the seed to the fruit to the harvesting would be recorded and would be publicly available to track its entire flow. The other key aspect being, one doesn’t have to rely on the brand to trust the provenance or the promise of the goods that are being created.
The concept is similar to that of voice over internet, that reduced the role of phone companies, Napster taking down the entire CD industry by storm.
Since it deals more about replacement of middlemen, the next logical question would be, what are the areas where Block chain, may potentially have a disruptive role – especially in the job sector?
Accounting firms immediately comes to mind as all they do is primarily verifying of transactions that took place. If Block chain takes off as the system of record inside of organizations, then we will need a lot fewer accountants. One of the most interesting aspects of the Block chain, because it’s a digitally native technology, is that it’s also programmable. So when a certain truck arrives at a certain supply depot based on GPS coordinates matching, we will release the funds. You will release the goods and the funds are released. Right now, the way it works is that, the materials get transported, then we email them or we send them an invoice, then it takes 30 days to process. And then the check gets written or some electronic payment is made.
Next immediate job sector on the firing line, would be the lawyers. They are the arbiters of contracts and all of a sudden, with smart contracts in play, the contracts are going to be automated. And that the intermediary roles that lawyers play in defining contracts, and figuring them out, and writing contracts will become redundant as if one can automate contracts, then once we have a template of one contract, you can replicate that over and over again and once we’ve a bulk set of template contracts created, it pretty much reduces the dependency on lawyers.
Musicians and other performing artists, would be other set of beneficiaries as they can remove the middlemen involved in them getting their royalties. So, the list goes on and on.
I found some interesting case studies of a leading bank who went live with Block chain this year, a prototype health care setup on block chain and how the concept may impact ERP world with one leading ERP already embracing the concept. Along with basic terminology definition of key terms involved with Block chain would be covered in the next series of posts.