At Qadre, we pride ourselves on making blockchain simple and understandable. In Alex’s first week working with Qadre, we invited him to one of our ‘Blockchain 101’ sessions - where we give participants a practical understanding of blockchain. The session only lasts two hours, but participants walk away armed with the ability to cut through the complexity often portrayed in the field. The following article is Alex’s take on blockchain technology and the opportunities it provides us.
Blockchain is the word on everyone’s lips these days, with many providing an unnecessarily complex explanation to push forward the myth that this is a technology that only you cryptographers and web developers out there can understand. In this article I will attempt to lay out the technology in simple terms that anyone can understand, leaving out that technical jargon that leaves you scratching your head.
A simple definition of blockchain is that it is a ledger of data that is both decentralised (it is not stored on one system but is distributed across multiple machines) and immutable (it cannot be changed). The network collaboratively reaches a consensus on the current state (what it considers to be the past and present truth), without relying on an intermediary to define that state. All parties involved have access to the same information; this being encased in a data structure we refer to as a blockchain. This data is cryptographically signed to ensure that neither party can change it once it enters the chain.
This can be easily explained with the sale of a house. When one buys a house, you are given access to the associated data stored through a simple ledger system - relevant information about the history of the house set out in a list, such as “chimney changed in 2001”. However, the core problem with this is that this list can easily be changed by the parties involved. If in their interest to do so, the seller of the house can edit this ledger, with just one character: “chimney changed in 2011”. With the introduction of blockchain technology, each piece of information that is relevant to this house can be certified and stored in sequential order on a ‘block’ (a collection of transactions and other unique data). Each entry has a unique identity (given to it through cryptography) which is connected to the identity of the last block on the chain. This ensures that no false information can be switched in as it will not have these unique relationships with the previous and following block. Therefore, since each relevant party has access to this information, it will become immediately obvious to the other party if the information has been tampered with as these unique cryptographic identities will no longer match up.
However, one may validly question whether, in these two-party physical exchanges between a buyer and seller, this data can’t simply be sufficiently safeguarded by an external regulator and hence reassure the buyer that it hasn’t been tampered with. When moving to the digital world it becomes more apparent how much benefit blockchain technology brings in ensuring two qualities that were previously extremely hard (and costly) to achieve - trust and accountability.
When making a transaction over the internet, for example from London to Beijing, there is simply too high a risk to both the buyer and seller that the other party will engage in fraudulent activity and not be held accountable for this. In order to secure trust and accountability throughout this transaction, it passes through a series of different intermediaries, each demanding their own charge as facilitator, until the transaction is finally verified and processed. Blockchain replaces the need for both parties of a transaction to trust in each other. Once the transaction is placed on the blockchain, both parties have access to this data and are unable to change it, they are therefore fully accountable to hold up their end of the agreement. Hence the technology can provide significant advances, enabling a transaction to be verified almost immediately instead of waiting for it to pass through a series of, now unnecessary, intermediaries. It is also at a far lower cost as there is no need to pay these intermediaries. Many of you have likely heard blockchain being described as a ‘disruptive technology’; the previous example shows why: it is changing the nature of how we digitally transact by securing a network of trust.
From this explanation of how important the technology is in any transaction we make, it can be easily seen what benefits it brings in non-financial interactions. For example, it can be used to replace the endless paper trails we have in modern healthcare. With blockchain, all of a patient’s medical information can be stored on a blockchain, therefore if and when this information is needed by a medical party, they can be granted access to the chain and see all of the patient's relevant medical history.
Having explained the benefit of an immutable record of data on a blockchain, it is important to understand how participants of the network are incentivised to join and how they gain greater ownership on the network. When discussing a first generation blockchain such as Ethereum and Bitcoin, it is likely you have heard of the method ‘proof of work’ - this involves a complex mathematical problem being attached to each block which ‘miners’ (the computers of active network participants) attempt to solve to receive a given reward: a token of the network. Once the solution is reached, it is verified by other miners on the network and the block is accepted, with its data stored on all computers on the network. This brings the benefit of the data being stored in a decentralised manner: it is not just stored on one or two systems but thousands worldwide.
However, this incurs two key problems:
It takes a very long time to verify each block, making it unscalable to compete with existing payments systems e.g. Visa. In the case of Bitcoin, this process takes roughly 10 minutes, however significantly longer for this transaction to be confirmed; as of 6AM on December 10th 2017, this average confirmation time was roughly 20 hours.
This method uses vast amounts of energy - the computer with the most processing power having the highest chance of solving the problem and verifying the block. Recent studies show that a single Bitcoin transaction requires enough energy to power 8 US households for a day.
For these reasons, Qadre has opted to use ‘Proof of Consensus’ to achieve verification. Approved parties have a ‘vote’ in the network. In order for a block to be verified, at least half of the network has to vote to approve it. The network is therefore inherently aligned, meaning disputes over transactions will not occur. This method retains the benefit of storing data in a decentralised way, however does not face the same problems as the proof of work method, requiring minimal processing power and being able to verify thousands of transactions per second.
I hope, therefore, that I have cleared up some misunderstandings regarding the essential function and possible applications of the technology. Although blockchain should not be viewed as a ‘silver bullet’ technology that will solve all existing problems and form a dystopian world run by cryptographers, it can and should be used to provide huge benefits in enhancing autonomy and efficiency across a large range of sectors in the economy.