What is Blockchain and Why Is It Important for Digital Transformation?
When Bitcoin launched in 2010, its enthusiasts hoped that it would change the world. The world is still waiting for the cryptocurrency revolution, but digital transformation (DX) experts have become fascinated by the underlying technology, known as blockchain.
Blockchain is already changing the way we organise information on distributed networks and seems like an ideal platform for DX. But exactly what is it? In order to understand it, we need to look at the origins of Bitcoin.
The Origins of Blockchain
The goal of Bitcoin was to create an autonomous electronic currency, one that was not managed by a government or central bank. Making this work seemed impossible – as well as the risk of fraud, forgery and theft, there were basic questions such as what happens if there was an error during a Bitcoin transaction? Without a central authority to oversee the currency, the logistics seemed insurmountable.
Blockchain is a delightfully elegant solution to these problems. In its simplest form, a blockchain is simply a record of transactions. If one person transfers bitcoin to another person, that transaction is validated using a sophisticated digital fingerprinting technique, and noted at the top of the blockchain. The blockchain is open and public, so anyone can examine individual transactions, making it easy to identify any fraud. It is impossible to edit or delete historical entries on a blockchain.
The blockchain is also distributed peer-to-peer across the network. Essentially, every computer on the network has a copy of the blockchain, so it can’t be lost or corrupted. This also greatly strengthens the verification process, as each update to the blockchain is checked against the older copies held elsewhere.
In the Bitcoin model, entries on the blockchain are protected using public key encryption. This kind of encryption is almost unbreakable unless you have the key, so blockchain data is secure even though it is stored in public.
What Does Blockchain Have to Do with DX?
All DX projects involve a move to larger, more complex, less centralized systems. Making this transition means finding the answer to several questions, such as:
- How can we ensure data integrity in a distributed system?
- How can we maintain privacy and prevent hacks?
- How do we deal with vast quantities of data that will be generated, for example, by IoT?
- How do we manage client profiles across platforms and between products?
- How can we find solutions to these challenges without increasing administrative overhead?
- How do we make this system scalable?
These are some of the problems that were faced by the developers of Bitcoin. Now, Bitcoin is a secure and successful cryptocurrency with a market cap of over $14 billion, which would not have been possible without a robust platform.
Bitcoin is just one of seemingly limitless applications for blockchain technology. As one expert puts it, “[Blockchain] is to Bitcoin, what the internet is to email. A big electronic system, on top of which you can build applications. Currency is just one.”
The question for digital leaders right now is to figure out how a technology like blockchain can work for them. Already, innovators are coming to market with surprising and creative solutions that threaten to disrupt markets in unexpected ways.
Next: 5 Companies That Are Using Blockchain Right Now.