What Is Blockchain?

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By: R. Scott Raynovich

Blockchain technology, which enables the creation of a distributed ledger driven by cryptography, has risen to prominence for managing transactions for cryptocurrencies. The most known and discussed application of the blockchain technology is called Bitcoin. But the technology has many other applications because of its ability to manage and verify data.

It's useful to think of blockchain as a secure, distributed record of transaction data, where a community is able to instantly verify every transaction or piece of data. This could have large implications for how systems reference data. 

Why blockchain is disruptive

The rise of the blockchain is likely to have a large impact on any technology or industry focused on recording transactions or databases. For example, let's look at how data is managed and transacted today. It can be updated manually or by automating a transaction and storing that information in a database -- often a relational database, which structures the data into columns and/or fields. The parties that are recording the transaction must be trusted or verified.  

Relational databases are the bread and butter of many financial systems around the world -- who hasn't seen their quarterly numbers in an spreadsheet? But the integrity of these databases relies on one party -- the person or institution that keeps them in order. Imagine if this management were "outsourced" to a global, distributed system that automatically verified all the transactions or records. That's blockchain. 

Blockchain has the potential of verifying data in a more automated and distributed way. How is that information verified? It can use a peer-to-peer network to verify the information by two or more anonymous parties. For example, if you were selling a car through blockchain, both the buyer and seller would verify the transaction on the electronic ledger at the same time. 

When you think of the industries that blockchain and distributed ledger technology could affect, it's wide-ranging:

And so on. You can see why people get excited about blockchain, because the technology is far-reaching in its potential impact. 

Blockchain challenges

The utopian view of the blockchain is not without its drawbacks. The process of aggregating and verifying data on a public blockchain can be very slow, for example, which has become a barrier to the expansion of cryptocurrencies. And in many cases, the expense and complexity of implementing a blockchain would not be any better than having a traditional data set that is reviewed by an authority. 

Some of the drawbacks of the public blockchain include the following:

  • Scaleability -- Most blockchain systems have trouble achieving massive scale because the process of using cryptography to verify transactions is slow.
  • Governance -- A distributed ledger system can be quite ethereal. It also poses regulatory and legal questions. Who's in charge? Where do you go to complain or regulate?
  • User complexity -- Blockchain systems can be complex and require management of cryptographic keys and addresses. There are technical challenges before it becomes mainstream
  • Expense -- The user of blockchain as an underlying technology has not yet been proven to be cost effective. How much will organizations such as banks or government have to invest to get a return on investment?

These are just a few of the challenges and some of them are, of course, large. But many technology experts say the promise of blockchain is perhaps the biggest since the emergence of the Internet. Many major investors and large organizations are now looking to crack these challenges to turn blockchain into mainstream technology. 

Stay tuned as Futuriom tracks the future of blockchain and the concept of a  "permissioned ledger" that could revolutionize many industries.