What does blockchain mean?

21 December 2017

Blockchain is a technology that you’ll probably be hearing about more in 2018. Unfortunately it is a complex concept that can be difficult to grasp.

Blockchain is basically a secure way of recording data or transactions on a decentralized digital ledger. It might not sound ground breaking, but some commentators believe that blockchain could be transformative, fundamentally changing the way in which we record, store and share data.

Typically, important data today is held and maintained (and closely guarded) by an organization or trusted third party – for example, banks use traditional ledgers to record financial transactions, or a government agency maintains a land registry. These ‘trusted’ central authorities manage the database and verify the information.

Blockchain, by contrast, is record keeping by the ‘crowd’. Instead of a central authority, blockchain allows multiple parties to create a shared digitized database or ‘distributed ledger’ of transactions. Each party holds a live copy of the ledger and has oversight of any changes or additions, creating a permanent, transparent record.

Blockchain can, therefore, be used to create a public record of transactions – for example, collecting data from the Internet of Things (IoT). Or it could be used to more securely share data between a select group – a corporation could use a blockchain platform to share real time information with suppliers, banks or insurers.

Blockchain is particularly promising for managing supply chains where it can be combined with IoT and smart contracts to track and trace products, verify documentation, automate processes and payments. It can also enable parties to track the ownership or origins of assets, with obvious implications for fraud and counterfeiting.

For example, Danish shipping company Maersk has developed a paperless blockchain system to process shipping containers as they journey around the world, and is also working on a blockchain marine insurance platform.

However, blockchain is not without its critics, and some believe the technology’s benefits have been overstated. Whether it proves to be a genuine breakthrough or just hype, blockchain is predicted to gain more prominence in coming years as it finds commercial applications beyond bitcoin.

Why does it matter?

Blockchain technology may also have important implications for cyber security. For a start, by storing data across a network of computers, the task of compromising data theoretically becomes much more difficult for hackers.

Given blockchain’s focus on cryptography and transparency, the technology lends itself to cyber security applications. A growing number of start-ups are beginning to offer blockchain-related security solutions. According to Forrester, blockchain could provide for secure certificate issuance and authentication, malware and ransomware protection and document authenticity and integrity verification.

Some organizations have already turned to blockchain for cyber security. Defense contractor Lockheed Martin sees blockchain as a possible answer to more secure supply chain and engineering systems. US intelligence services said earlier this year that blockchain could be used as a way to shield military technology, communications and purchases. Since bitcoin was launched in 2009, there have been no successful cyber attacks against the virtual currency. However, security is still a concern for blockchain, which is an embryonic technology.

While cyber attacks against blockchain platforms would be hard to pull off, it is not 100% secure. For example, though it may be possible to authenticate bogus transactions, researchers have shown that it is possible to infect a blockchain system with malware.

For more information, please contact Martin Delaney, Senior Vice President - Leader, Cyber and Risk Management Services at ClientFirst@jltcanada.com.