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Given that crypto-currency bitcoin is the poster-child for blockchain technology, it’s no surprise that much of the blockchain fuss – and, indeed, much of the actual blockchain work – is focused on payment systems and related areas such as invoicing and tax reporting.
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Yet blockchain as a technology is far more widely applicable than this. At heart, it is simply a cryptographic method of distributing data and recording transactions.
Blockchain’s power lies not only its heavy encryption, but also its distribution across a chain of computers, rendering it even harder (and prohibitively expensive) to attack.
It is a distributed database on steroids: a self-verifying sequential storage scheme that can be used to immutably record transactions, ownership or identity, to negotiate and enforce contracts, and much more besides.
It has accordingly been used within a number of replicated databases and similar projects.
For example, backup and storage specialist Acronis has used it to prove that stored data has not been tampered with – in effect creating a verifiable backup.
To make blockchain practical from a cost perspective, the Acronis technology stores only hashes of its data blocks. It could store the whole thing, according to Acronis CEO Serguei Beloussov, but that would be more expensive, and in any case the encrypted and distributed hashes are enough to verify the data blocks.
Blockchain does not just store data in a distributed and encrypted form – there are, after all, other schemes that can also do that – it does so via a sequential chain in which each block contains a cryptographic hash of the block before it in the chain. This links the blocks, creating a decentralised transaction ledger.
This ledger can be visible and public, thereby providing a transparent view into the historical sequence of facts and events, or it can be permissioned, as preferred by financial organisations for privacy reasons.
Whether public or private, the ledger allows the stored data to be verified as consistent, and because it is decentralised it provides resistance to external attacks and malicious actors within the system.
Significantly, a blockchain can also still generate and replicate data despite only intermittent network connectivity. As for security, hackers’ reported theft of bitcoins is more to do with their owners’ inadequate digital wallet security than with any weakness in the blockchain technology.
No more middlemen
For many observers, the biggest change that blockchains are likely to bring is disintermediation. That is because a well-designed and publicly accessible blockchain can replace many of the functions that we currently rely on intermediaries for, such as providing a trustworthy trading environment, ensuring contract compliance, guarding against fraud and handling financial transactions.
And, it turns out, that kind of functionality can even be turned to the provision of data storage.
Storj’s cloud storage
Storj Labs uses blockchains to create a decentralised cloud system using spare disk space allocated by a community of “farmers” who receive rent in Storj’s native cryptocurrency. Stored files are “shredded” and the shards encrypted and distributed across the available storage – this is where such blockchain features as a transaction ledger, public/private key encryption, and cryptographic hash functions come in.
For Storj Labs, blockchain elegantly solves many of the challenges around putting your files on someone else’s home or office computer or NAS device. In particular, the shards are protected against intrusion, and three copies of each are stored to provide redundancy in case a remote system goes offline.
The blockchain stores information such as the network locations of each shard and its cryptographic hash as proof of storage, verifying that the farmer still has that shard and that it is unmodified. The “cloudy community” also means that if you take your node offline and fail your peers, then your contracts and revenue will move elsewhere.
According to Storj, because your data is redundantly distributed, its blockchain-enabled cloud storage offers just as safe and fast an option as something from one of the big companies, yet at half the price. In large part this is because Storj does not need to buy vast datacentres and humming racks of high-powered technology to fill them with – the storage is already out there and going spare.
It is easy to be cynical about this business model, which relies on individuals buying hardware that they then rent out for a relatively small income to become part of a fashionable “sharing economy”.
Yet the fact is that individuals do have spare disk capacity that goes unused, and at the moment there is no way for them (us!) to do anything useful or profitable with it. It simply would not be cost-effective for a web-scale intermediary such as Amazon, Google or Microsoft to aggregate and resell it, nor do we as individuals have the resources to sell it ourselves, generate invoices, chase bad debts, etc.
Blockchain bypasses all those obstacles too. By its very nature, it provides the sort of web of trust that the intermediaries and other commercial actors must build from the legal system, credit ratings agencies, the banking system, and so on. It permits micro-transactions and micro-payments too, which is something many online businesses have been seeking – and failing to find – for decades now.
For all bitcoin’s counter-culture reputation as the currency of choice for the black market and the dark web, even governments and government agencies are now studying blockchain-based distributed ledgers.
They see the potential of a tamper-proof way of storing (or at least verifying) records such as land ownership, business licences, or birth and death certificates, in accordance with open data principles.
Just as blockchain can verify that a stored file has not been tampered with, so it could also store digital signatures and provide identity verification. Taken together, all this could allow citizens to self-service many transactions that currently require the attention of civil servants and lawyers.
There is plenty of commercial interest too. A few companies already use specially encoded (or “dyed”) satoshis – the smallest denomination within bitcoin – to store ownership ledgers.
For example, Everledger tracks diamonds this way to help fight insurance fraud. Similarly, the companies behind an IBM-led open source project called Hyperledger believe its blockchain-derived but permissioned technology can be used to track the ownership and exchange of all sorts of things, from stocks and shares to cars and houses.
More on blockchain
- If you’re not educating yourself on blockchain technology right now, you can bet your competitors are. Read our two-part primer on launching a blockchain implementation.
- A programmable economy could reduce corruption, simplify supply chains and even render spam obsolete. The blockchain ledger is an essential ingredient.
One caveat is that these services are no longer peer to peer – they are intermediaries piggybacking the P2P blockchain to take advantage of its security and verifiability. Likewise, those permissioned ledgers are no longer truly decentralised – the network nodes verifying transactions must be authorised to do so. Could that make them more vulnerable, as has been claimed?
Another more general caveat is that as transactions occur, the blockchain lengthens and grows, yet each node needs a copy of the whole chain. At the time of writing, the bitcoin database looked likely to hit 100GB around the end of 2016.
The key, though, is that all these versions of the blockchain are more than secure sequential distributed databases. They offer the ability to simplify and automate many transactions, and make it easier and cheaper for people and organisations to collaborate.
Just as important, they challenge the long-held assumption that storage must be centralised and owned in order to be trustworthy. That is going to be a tough pill to swallow for many, whether they are in finance or data storage, in business or in public service.