Just about everyone has heard of the virtual currency known as Bitcoin.
But what about blockchain, the digital framework that enables Bitcoin's existence and grants it legitimacy as a store of value?
Invented in 2009, this technological innovation could potentially revolutionise not just the way we transact financially online, but also the way we record, retrieve and verify information.
We have chained together five things you must know about blockchain technology — and how it could change the way the world works.
1. Building blocks and chain of consequence
Blockchain has often been called a digital ledger—a permanent, tamper-resistant record of transactions.
If you’re wondering how it got its name, look no further than the way it’s organised. Imagine each transaction—of money or goods, for example—as a block.
To become part of the permanent record, blocks must be linked to a chain, which gives them identity and a linear order — we'll always know which transactions occurred earlier, and which occurred later.
Before a block can be added to the chain, its contents must be validated.
This process involves complex mathematics, but one can think of it as multiple witnesses independently testifying that the new transaction indeed occurred.
Once validated, the new block is sealed off and added to the chain. If a transaction is found to be false, the new block is rejected.
And if the contents of a previous block are tampered with, the whole chain is broken, thus alerting everyone to the interference.
2. Decentralisation Central
Blockchain is a virtual construct, but even virtual constructs need hardware for data storage.
Instead of a central storage facility, blockchain data is located on every computer that runs the blockchain software; that is, every participant or node in the blockchain network owns a copy.
To return to the ledger analogy: instead of just a single book, every participant gets a copy of the ledger, and everybody’s copy gets updated each time there is a new transaction.
This decentralised or distributed storage framework is another defining feature of blockchain, and affords it a high level of transparency, as well as robustness against cyber-attacks.
Any individual on the blockchain network who seeks to unilaterally modify a record can be easily identified.
At the same time, the wide spread of storage infrastructure across many geographical locations and time zones makes the blockchain network very difficult to cripple.
Thus, blockchain is considered by some as a democratisation of trust in this digital age.
3. It could transform financial services...
Blockchain’s potential to change the world of finance has made central banks sit up and take notice.
“A blockchain-based payment system would enable round-the-clock transactions globally, and the transparency afforded by the system reduces the costs and risks of transactions, which could lead to an increase in trading volume,” said Sopnendu Mohanty, Chief Fintech Officer at the Monetary Authority of Singapore (MAS).
Yet, the technology’s full implications for financial systems remain unclear for now.
MAS — together with blockchain technology firm R3, software company BCS Information Services, and a consortium of financial institutions — has thus initiated several trial projects to better understand blockchain, develop governance arrangements for blockchain-driven solutions, and explore the use of a central bank-issued digital currency.
4. ...and healthcare, too
Blockchain technology could also impact the healthcare sector by changing the way patient information is managed.
Consider the current state of affairs: each time you visit a different clinic, you need to update the physician about your pre-existing health conditions, drug allergies and family history.
This is not only frustrating, but also dangerous, since incomplete health records could lead to misdiagnoses.
With blockchain technology, these issues could become a thing of the past.
"One area we have considered previously is the ability to have a shared medical record among clinics and hospitals," Ashley Loo, co-founder of Singapore fintech blockchain startup KYCK!, told TechNews.
“This way, patients are not fixed to any particular clinic or hospital, and will not have to repeat unnecessary costly tests if they decide to switch.”
5. Appetizing potential for the supply chain
The supply chain encompasses all the processes that go into the creation of a product and its eventual delivery to the consumer.
The perennial, million or billion dollar question is: "What is the weakest link?"
Although physical supply disruptions remain a critical risk, the traceability of goods at various points in the production cycle is also an issue that supply chain managers need to tackle.
By being able to monitor where raw materials are coming from and how they are processed, assembled and distributed, companies can assure their clients of the quality and safety of their products.
This is where blockchain technology becomes useful as a secure and transparent database: for example, blockchain could serve as an immutable record of where animals are farmed, the diet they are fed, and their health status at the time of slaughter.
This helps to ensure that only untainted meat is served up for dinner.
With some optimisation, blockchain could become an integral part of global food safety in the coming years.