Four Things You Should Know About Blockchain Technology

We’re living and working in a truly amazing time. Technology is exploding and being applied to nearly every aspect of our businesses, improving efficiency and increasing opportunities. One technology you’ve most likely heard of is blockchain, but many don’t fully understand what blockchains are, how they work, and how they may–or may not–benefit aspects of their digital applications. Read on four important aspects of blockchain technology.

Blockchain is Not Crypto Currency

It’s a common misunderstanding. Crypto currencies, such as Bitcoin or Ethereum, consume blockchain technology to record transactions. It’s a component many crypto currencies use, but standing alone blockchain is simply a ledger. Ethereum even calls it a “database of transactions”, and like any database, it’s a critical component of a digital application but it’s not the application itself.

Crypto currency, however, does dictate how the blockchain data is validated. In your digital applications, those that use a database, you likely take great precautions to protect your data and access to that data. But traditionally blockchain entries are stored in a text file and that text file is freely distributed. What prevents individuals from corrupting the data in their copy and claiming it’s correct? The answer is in the very distributed nature of the blockchain data…because many (even millions) of copies are distributed, the vast majority of file holders see the corrupted file as invalid and make others aware. Unlike a private, protected database, the very public nature of the distributed file serves as its protection.

Blockchain is a Data Structure

If you study digital and computer engineering, the term data structure has formal meaning. Entire doctoral dissertations are dedicated to wringing one tenth of one percent improved speed from a given searchable data structure. As a data structure, blockchain is a way to arrange data for storage in an immutable way, meaning once recorded, we can’t change what was recorded. If you’ve ever used QuickBooks and made an error, you know how difficult it is to correct that error. QuickBooks would rather you add a new entry to compensate for the erroneous entry. Blockchain, if used correctly, would work similarly. Once you record something in the chain, it’s recorded there forever. Any technology can be hacked, but that’s the concept.

Data structures in general each have specific conditions under which their use makes sense. Just as car parts each have a specific task for correct car operations, each data structure plays a role as a working cog in the final digital application. A steering wheel cannot take the place of a front tire, but it’s an excellent device for steering the vehicle. When you think of using blockchain technology, you therefore need to consider the tasks you’ll ask of it and how well it can perform given your needs and requirements.

How Blockchain Works

As mentioned, blockchain records are typically stored as text in files that can be passed around freely. This isn’t mandatory, but it is common. Therefore, whatever information you’re recording in your blockchain entries, called blocks, should be convertible to text. The contents of the block are then hashed, using a cryptographically secure algorithm to convert the text into a unique value. Changing even a single character will produce a different hash value.

The strength of blockchain is that part of the data you will hash is the unique hashed value of the previous block. In effect the blocks are chained, or linked, by their hashed signatures. Any one block is coupled to its predecessor. If you were to change a recorded entry value somewhere in the middle of the chain (granting yourself a few hundred Bitcoin, for example), the hash signatures of all following blocks would be invalid. It becomes obvious the file was tampered with. Even if you recalculate new hash values for all following blocks, they won’t match the millions of copies of the file already distributed. The veracity of the file is in question and the file is therefore discounted and ignored by the community.

If blocks are composed of entry data and the hash signature of the previous block, then there must be an initial block, a starting point. In fact, there is and it’s called the genesis block. Genesis blocks do not normally contain entry/ledger information. They’re used to create a starting hash signature that the following blocks incorporate into their hash values. The second block in the chain then has a prior block’s hash signature to roll into its own and the chain begins.

Blockchain Considerations

If you’ve come to the realization that blockchain is a component, a tool, you have the right idea. But like any tool, there is a time and a place the tool makes sense. It seems every day new marketing campaigns appear touting some device’s or service’s use of blockchain, so in effect one could argue the best use of the tool is for marketing purposes. But in reality, where and how it’s used should be well considered.

If you’re seeking to use blockchain in IoT (“internet of things”) applications, the processing power of the individual devices must be taken into account. Your blockchain may not grow to the size of Bitcoin’s, but your device will still need to verify the file by examining each block, calculating the hash signature and verifying the calculated value with the stored value.

As for validation, if your blockchain isn’t public, you’ll need to protect it as you would any database. Your application will need to verify the blockchain information each time it’s consumed, or certainly at least on application initialization, and you’ll need to guard against hacking and intrusion as with any critical storage technology.

There may even be legal implications. Blockchain isn’t infallible. While the technology is freely available for your use, you’ll be responsible for inadvertent hacking and release of private data. Blockchain provides for validation but not protection.

About the Author

Kenn Scribner is a Senior Principal Consultant at Sparq and has helped many Sparq clients with their digital application needs. He has authored, co-authored, or ghost written ten technology books and dozens of articles. In his spare time, he’s started a small family distillery with his son and races high-horsepower motorcycles.