Blockchain: The Future of Secure and Transparent Data

Blockchain

The following is a white paper that I wrote in the Fall of 2017.

The internet is a crucial place for commerce and exchange. Most businesses rely heavily on the ease and speed of digital transactions and the limitless capacity for data storage embodied by the internet. Almost every month, we hear of a new data breach exposing the sensitive information of millions of customers (Armerdeng, 2017). Sometimes it seems as if there is no reliable way to keep information on the internet close at hand and safe. Security is the major issue facing most companies and no one seems to have come close to solving the problem. 

Until now. 

A technology called blockchain stands to revolutionize the way business handles its own data and that of its customers, ensuring security on a scale as yet unobtainable by simple encryption. Blockchain is best known as the database framework that the digital currency Bitcoin was built upon, but its greatest promise lies in its ability to keep safe records, ensuring that the information remains verifiable and easy to access but also untouchable by hackers or other bad actors.

Is your company charged with safeguarding the sensitive data of millions of customers? Blockchain can help you do that. Are you responsible for keeping track of multiple steps in a production line, for example the many steps involved in bringing a food item to market? Blockchain can help you do that too. Blockchain can help you keep track of all of that information, keep it safe and make it easy to access that data in seconds.

This paper will explain what blockchain is, how it works, and how it solves the major issues of data security and transparency for business, and how to begin to integrate it into your company’s operations. 

What is Blockchain and How Does it Work?

Blockchain is a method of record keeping using a digital ledger that keeps data secure and easy to access. To understand how it works, we need to look back to the development of the first cryptocurrency, Bitcoin. A bitcoin is created when computational tasks are fulfilled by a user on a peer-to-peer (P2P) network (Bauerle, 2017a). When this user completes a task, it is grouped with a time stamp recording when the task was completed, along with a notation known as a hash, all encrypted into a unit referred to as a block (Dabbs, 2016, paragraph 6). A monetary reward is then passed to the user in bitcoin.

The hashing function connects each block to the one preceding and following it, validating the information along the chain of linked blocks (hence the name blockchain). This system, referred to as a distributed ledger (Dabbs, 2016, paragraph 9), is the reason that blockchain is difficult for anyone to hack. The blockchain created by these transactions is hosted by a large community of computers (called nodes) (Marvin, 2017, paragraph 2) all contributing to the blockchain in real time. To change one transaction in the chain means having to change all the blocks in the chain. 

By design, the blockchain is updated every ten minutes (Tapscott, 2015, p. 22). This means that to break into the blockchain you would require computing power allowing you to break into every block on a chain that is continuously being updated in real time. Every single transaction on the ledger is retained, and the record will look the same for anyone on the network who accesses the ledger (Tapscott, p.22). Each transaction on the blockchain (translated into code) is made additionally difficult to hack via encryption (Bauerle, 2017b, Tapscott, p.21).

The longer the blockchain has been operational, the harder it becomes to hack because the very size of the ledger makes it near-to-impossible; the larger the ledger, the more computational power is required to break into it. This is why the Bitcoin blockchain, one of the largest, is still being used (Bauerle, 2017b, paragraph 15).

Private Versus Public Blockchains

The Bitcoin blockchain functions on an open, peer-to-peer (P2P) network (Bauerle, 2017a and b). In the real world, when you complete a transaction such as a purchase, the transaction often involves third parties such as banks, regulatory and government agencies, etc. With blockchain, the P2P framework means that you exchange directly with another, no third parties involved. Taking extra parties out of a transaction increases security as well as speed. 

The security of a blockchain is also related to the number of users contributing to it. The bitcoin blockchain was built on open source code, meaning that anyone who wanted to join it could do so. The more people contributing, the larger the blockchain, and the larger the chain, the more secure. The bitcoin blockchain is considered a public blockchain for this reason. The factor that sustains and promotes the security of the blockchain—trust—is created by the process of amassing users. This is known as the network effect, where the more people who use a service, the greater the improvements to the service (Marvin, 2017, paragraph 25).

Other models of blockchain have been proposed. In formulating blockchain-as-a-service (BaaS) models, some companies are developing private or closed blockchains, where only approved users would be allowed to add to the chain (Marvin, 2016). This appeals to the traditional ideas that most companies hold about security, but runs counter to the underlying principle of a blockchain, which relies on a decentralized system where no one user holds the sole key. 

There are blockchain platforms, most notably Ethereum, that combine the security offered by a public blockchain (using a decentralized distributed ledger) with the ability to develop other applications called smart contracts that link to the blockchain for transactions and record keeping (Hertig, n.d.). This is where the power of blockchain to revolutionize data security and data provenance comes into play.

Blockchain for Data Security and Data Provenance

Smart contracts are the key to unlocking the potential for blockchain to create a safer method of record keeping that allows records to be accessed at a moment’s notice. As mentioned in a coindesk.com blog post, smart contracts are agreements drawn up using code that:

….[can] manage agreements between users, say, if one buys insurance from the other; provide utility to other contracts (similar to how a software library works); store information about an application, such as domain registration information or membership records (Hertig, n.d., paragraph 14).

This translates to a method whereby all of the transactions of a company that involve it in the collection of user data can be uploaded and stored on a blockchain. If a company sells a service such as credit history reporting, it can codify the exchange of the information for payment by drawing up a smart contract with a paying customer. 

The entire process of the transaction is recorded to the blockchain, and the information about the customer is also recorded. Both pieces of information are kept safe by encryption and by the underlying, decentralized structure of the blockchain. The potential for businesses to create their own blockchains or contribute to existing ones for this purpose is limitless. 

One of the most promising applications of the blockchain is in industries where maintaining a record of the provenance of a product in a manufacturing or processing cycle is crucial, such as for reasons of food safety. A company in Taiwan is already using blockchain technology for this reason, and Walmart has successfully completed a pilot program using a blockchain to track the origin of produce sold in their stores (Duhaime-Ross, 2017). 

Prior to using a blockchain, it took Walmart almost seven days to trace a product: after the implementation of a blockchain system, it took 2.2 seconds (Duhaime-Ross, 2017). The benefits of this application of the blockchain are clear in increasing customer safety and transparency over any system of production, manufacturing or health process. 

If a company uses multiple vendors in the production of an item, say two different assembly factories, they can set up a blockchain-enabled system to record the provenance of the same item assembled in two separate places. This ensures quality control and allows a company to quickly and easily recall items that have the same provenance, distinguishing them from items assembled or produced elsewhere.

In a manufacturing or production cycle where the provenance of a product has implications not only for customer safety, but for the bottom line of a company, a blockchain can save time and money in a way no other record keeping method ever could.

What Does This Mean For You?

An investment in blockchain presents a unique opportunity to resolve a lot of the major issues facing larger businesses: keeping track of product origin and safekeeping of customer and company data. In an age where such technology exists, there is no reason for customers to be vulnerable to data hacks or improper product cycle management.

Blockchain holds real promise to become the standard for data management. Major corporations such as Walmart, Nestlé, and Unilever are working towards developing blockchains to manage their products (Marvin, 2017b), and companies such as IBM and Microsoft have been working on BaaS solutions (Marvin, 2016). There are numerous startups working in this arena, besides. This is more than a passing fad. 

Executives at large corporations have already begun taking notice and putting their money where their mouths are. From PC Magazine:

A Deloitte survey released in December 2016 polled blockchain-knowledgeable senior executives at organizations with $500 million or more in annual revenue. Of the 308 respondents, 28 percent reported that their companies have already invested $5 million or more in blockchain technology, with 10 percent investing $10 million or more. (Marvin, 2017a paragraph 69)

Businesses stand to lose much by ignoring the potential inherent in blockchain-based data management. The era of CEOs testifying before government and being unable to explain the failure of their companies to protect their customers—and getting a pass—is about to end. Companies that fail to fully exploit the potential inherent in blockchain to increase security and transparency will ultimately be seen as not taking their customers’ safety and privacy seriously.

Next Steps

Blockchain is a burgeoning technology, but paths are already being laid toward its integration in various industries. To determine exactly where and how to begin implementing blockchain into your business:

  1. Perform a needs assessment: Evaluate the areas where your company has failed or succeeded. Are there ways you can improve customer safety? Has your company or customer data been hacked? Do you need better oversight of your production or manufacturing lines? What points of weakness have your tech staff identified?
  2. Check out the competition: Who else in your industry is implementing or looking to implement blockchain? How are they approaching this: developing proprietary apps, using BaaS? Are there consortiums joining forces to develop blockchain for your industry? What makes the most sense given your company’s challenges? 
  3. Do some research into blockchain startups as well as the larger players: There are many startups developing blockchain-based applications that are already in use, in addition to the larger companies like IBM and Microsoft.
  4. Create a timeline and strategy for crossing data over to blockchain-based systems: Include technical staff at your company in the discussion. 

References:

Armerdeng, T. (2017, October 11) The 16 biggest data breaches of the 21st century. Retrieved from cso.org.

Bauerle, N. a. (2017). How Does Blockchain Technology Work? Retrieved from coindesk.com.

Bauerle, N. b. (2017). What is Blockchain Technology? Retrieved from coindesk.com.

Dabbs, A. (2016, November 6). What is a blockchain, and why is it growing in popularity? (Article) Retrieved 2017, November 22 from arstechnica.com

Duhaime-Ross, A. (2017, November 1). This Company Is Using Bitcoin’s Tech To Prevent Foodborne Illness [webisode]. Vice News. Retrieved from: https://news.vice.com/story/this-company-is-using-bitcoins-tech-to-prevent-foodborne-illness.

Hertig, A. (n.d.) How Do Ethereum Smart Contracts Work? Retrieved from coindesk.com.

Marvin, R. a. (2017, August 29). Blockchain: The Invisible Technology That’s Changing the World. PC Magazine. Retrieved from pcmag.com.

Marvin, R. b. (2017, August 22). How a Global Supply Blockchain Could Stop Foodborne Outbreaks. PC Magazine. Retrieved from pcmag.com.

Marvin, R. (2016, July 21). Microsoft and IBM Set Sights on the Next Cloud Frontier: Blockchain-as-a-Service. PC Magazine. Retrieved from pcmag.com.

Tapscott, D and Tapscott, A. (2016). Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business and the World. Toronto, ON: Penguin Canada.

Image: top image from: IBM.com

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