Blockchain Basics

Blockchain BasicsThis is the season for predictions. Many tech prognosticators say that 2017 will be the year for Blockchain. As an emerging technology, Blockchain is approaching what Gartner (IT) calls the Peak of Inflated Expectations – a period the analyst refers to as “when early publicity produces a number of success stories — often accompanied by scores of failures. Some companies take action; many do not.”

BlockchainJust to prove the point, Business Insider claims blockchain has the capability to transform the world of digital banking and finance — and beyond. The author suggests that the complex technical nature of blockchain makes it difficult for people to fully grasp how the technology works. BI helps blockchain novices understand exactly what blockchain is and how it works.

Blockchain is a distributed database or ledger that allows companies to initiate trade digitally without the need for approval from a central authority. Because blockchains are distributed, an industry or a marketplace can use them without the risk of a single point of failure.

Blockchain ledgerThe ledger is the central part of a blockchain. The ledger is publicly available and shared among all parties within the network. It can’t be changed or tampered with, making it secure. The ledger keeps track of all the details of a transaction, including time, date, parties involved and the transaction amount.

The article examines how the most common blockchain application, a bitcoin transaction, works.

  1. Alice decides to buy bobbles from Bob’s Bead Boutique online.
  2. Bob’s Bead Boutique accepts bitcoin.
  3. Alice has a 3rd party bitcoin wallet set up to hold her digital funds.
  4. Bob at Bob’s Bead Boutique shares his unique numerical bitcoin address with Alice.
  5. Alice makes her payment to Bob’s Bead Boutique by signing it with her private key of her own address. The transaction is called a block.
  6. The block is broadcast to everyone within the peer-to-peer network.
  7. Users who verify the buyers block via a process called “mining” will be rewarded with bitcoins.
  8. To verify and validate the block, miners take information from the block and run it though an algorithm.
    The approved block is attached to the previous transaction in the network.
  9. Collectively all the transactions form a blockchain which cannot be altered making it permanent and transparent
  10. The transaction is verified and completed.

disruptive technologyBI claims that the most important aspect of blockchain is its versatility. The author claims that the disruptive technology has implications far beyond bitcoin. The article points out there are more than 100 blockchain projects spread across many different industries. Here are some industries blockchain could disrupt.

Banking and Financial Services – Blockchains is more secure and efficient so financial processes powered by blockchain could save banks up to $20 billion dollars annually by 2022.

Healtcare – Blockchains could allow patients to securely share their health records across a vast network of healthcare providers more securely. Preventing many of the recent healthcare data breaches.

Music –  Blockchain could potentially be used to help prevent piracy in music while also increasing sales.

Insurance – Blockchain could allow wholesale insurers to overcome complex transactions that involve a large number of participants and increase efficiency in areas like documentation and claims management.


The Brookings Institute correctly argues that Blockchain is a foundational technology, like TCP/IP, which enables the Internet. And much like the Internet in the late 1990s, we don’t know exactly how the Blockchain will evolve, but evolve it will.

Blockchain is a foundational technologySimilar to the Internet, the Blockchain must also be allowed to grow unencumbered. This will need careful handling that recognizes the difference between the platform and the applications that run on it. TCP/IP empowers many financial applications that are regulated, but TCP/IP is not regulated as a financial instrument.

Disruptive technologies rarely fit neatly into existing regulatory considerations, but rigid regulatory frameworks have repeatedly stifled innovation.

Ralph Bach has been in IT for fifteen years and has blogged from his Bach Seat about IT, careers and anything else that catches his attention since 2005. You can follow me at Facebook and Twitter. Email the Bach Seat here.

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