Blockchain

Overview

You may have read about Bitcoin or heard about it at a ‘FinTech’ conference. You may have used Bitcoins to purchase pizza, coffee or even a spaceflight. Wherever the digital currency comes into discussion, fierce debates often follow. 

Early adopters passionately claim that Bitcoin will remove dependencies on banks and governments. Hardened business tycoons advise that Bitcoin is just a ‘flash in the pan’. While the debate about Bitcoin rages on, researchers have been quietly examining the technology that underpins this and other digital currencies.

This is the realm of the blockchain – a protocol for exchanging value over the internet without an intermediary – and there is a growing buzz about how it might transform not just banking but many other industry sectors, too.

In our view, there are new and emerging opportunities for organisations in all sectors to create and deliver compelling services for their customers using the power of disruptive innovation. As they formulate their plans for the coming months, we also hope that this paper helps business and public sector leaders understand the cultural and organisational challenges that are inevitably brought by the use of blockchain technologies, and provides them with the insights they need to overcome them.

What is blockchain and how does it work?

Despite its apparent complexity, a blockchain is just another type of database for recording transactions – one that is copied to all of the computers in a participating network. A blockchain is thus sometimes referred to as a ‘distributed ledger’. Data in a blockchain is stored in fixed structures called ‘blocks’. The important parts of a block are:

• Its header, which includes metadata, such as a unique block reference number, the time the block was created and a link back to the previous block
• Its content, usually a validated list of digital assets and instruction statements, such as transactions made, their amounts and the addresses of the parties to those transactions.

Given the latest block, it is possible to access all previous blocks linked together in the chain, so a blockchain database retains the complete history of all assets and instructions executed since the very first one – making its data verifiable and independently auditable.

As the number of participants grows, it becomes harder for malicious actors to overcome the verification activities of the majority. Therefore the network becomes increasingly robust and secure. Indeed, blockchain solutions are being planned to protect data from the UK’s nuclear power stations, flood-defence mechanisms and other critical infrastructure.