Today, we hear a lot about fake news and information overload, particularly on the internet. But what if there was a way for people to have access to data so that the ‘truth’ of the data was preserved? Enter distributed ledger technology (‘DLT’). Many readers will have heard of ‘blockchain’ which is one form of DLT and is the focus of this article.
Blockchain has its roots in cryptography and encryption technologies. Historically, the purpose of cryptography was to secure data for transmission using encryption so that only those recipients with ‘keys’ could decrypt the data and use it. Encryption ensured data integrity and confidentiality. Encryption built trust because the sender could not repudiate the transmission. But with a key the data could not only be viewed but altered which potentially undermined the data integrity. Now, through Blockchain, data is still secured but the technology dispenses with the key. Instead it enables anyone to view the data but with limited rights to alter the data.
How does it work?
Simply, blockchain technology uses a ‘chain’ of ‘blocks’. Blocks consist of encoded information about a transaction. The Blocks are pushed to ‘nodes’, part of the computer network for publication. A node receives a block, verifies the block and adds it to the chain of record.
Let’s take a simple use case – you buy something valuable:
· The block stores information about who and what is involved in the transaction;
. The information is encoded using a digital signature, thus no personal identifying information is involved;
· Each block has a ‘hash’ that enables that block to be identified from another block;
· The block is ‘published’ to the node and forms part of the ‘Blockchain’ which is capable of being searched. The chain of blocks is stored chronologically; and
· If you want to change your purchase to increase the number of items being shipped then the block can be edited but the hash changes as well.
What’s the hype?
The hype around Blockchain relates to:
1. the ability to be anonymous behind a digital signature;
2. The security and trust in the linear chain and the hash – the blocks are difficult to edit and the ‘hash’ updates each time a record is altered. A hacker has to change the hash of every transaction after a block is altered in order to cover the hacker’s tracks. The computer power to do that makes it almost impossible to cover the tracks;
3. The Blockchain has the potential to remove the ‘middle person’ from the transaction depending on how the ledger is established. The Blockchain ledger can either be:
· Decentralised or publicly accessible (e.g. crypto currencies); or
· centralised with a controlling entity or intermediary.
4. The applicability of the technology to many use cases.
A Use Case or two…
Today, Blockchain is most associated with crypto currencies such as Bitcoin. Bitcoin adopts the decentralised model which is resource intensive in terms of power and computer usage. However, other use cases are emerging. These ‘other’ use cases are based on the ‘centralised’ model. Examples include land registries, supply chain logistics and stock exchange activities.
One land registry considering the move is NSW which is conducting a Proof of Concept using the DLT from a Swedish start up, ChromaWay. In June 2018, ChromaWay together with several Swedish banks, real estate agents and the Swedish Land Registry were able to live demo a Blockchain transaction for the sale of land.
Supply chain logistics management is another area where Blockchain has potential. The shipping giant, Maersk together with IBM has developed a platform, TradeLens, that is being used in beta testing to link port operators, customs authorities, cargo owners and freight forwarders. Some 94 participants are using the platform which is expected to be commercialised very soon. The collaborators are also looking at smart contract services for shipping orders.
Blockchain and other DLT have enormous potential in the Finance industry where ‘FinTech’ is taking off. The UK Government’s financial regulator, the FCA, has adopted a sandbox development approach and is enabling Fintech companies to test products and services in a live market setting. In Australia, the ASX Limited is rolling out a new platform, ‘DLT based CHESS’ to replace its current system. The ASX will be the world’s first DLT enabled stock exchange which will streamline processes.
For smaller organisations, it is still a ‘wait and see’ approach. But what a technology to ‘see’ develop!