There are few business leaders who would disagree that we are living in a time of great change. Thanks to the digital revolution, we now find ourselves in a hyperconnected world radically shaped by what can best be described as the “network effect”: the fundamental architectural shift in the way the world works from hierarchies to networks. While the network effect has been the catalyst for the proliferation of things we never knew we needed, but we now can’t live without—such as the internet, mobile phones, and social media—digital content has a shadow side. In a hyperconnected world, access to this data isn’t restricted to the good guys.
Unfortunately, the combination of digital networks and traditional data structures has unwittingly spawned an acceleration of hacking and fraud. It is arguable that no data system constructed today, using traditional IT architecture, is safe from a determined hacker. As we stand on the threshold of the next wave of the digital revolution with the emergence of the Internet of Things (IoT), this digital content vulnerability could become more than problematic unless we transform the basic architecture for how we build IT systems. This is where a new technology, blockchain, could make a big difference.
Blockchain is a distributed ledger system that uses a network consensus to record and execute transactions. It’s best known as the platform for the web currency bitcoin, which is currently revolutionizing the financial services industry. However, blockchain has recently drawn wider attention as an increasing number of business leaders recognize that the underlying technology of this transformational architecture can be applied to almost any industry.
Blockchain’s most distinguishing characteristic is that no single agent has the ability to execute control over system activity. To understand this, consider this analogy. Suppose a speaker is addressing a public audience of 100 people; assume this audience represents a blockchain community. Picture that, in the middle of the presentation, a 3' x 3' piece of ceiling tile falls and lands 2 yards from the speaker’s feet. If one of the members of the audience wants to record this event on the blockchain, she may propose the entry, but the event will not be recorded until a majority of the audience agrees with and validates the entry.
Once the event is recorded, it is immutable and can never be altered. This means that if, later in the day, another audience member wants to “spice up” the event and change the record to reflect (falsely) that the ceiling tile hit the speaker in the head and knocked him out, she will be unable to do so because the majority of the audience members are not going to validate a false entry. This systems architecture is likely to revolutionize the way we build IT systems; it has the potential to eradicate most hacking and fraud activity.
Another characteristic of blockchain is that stored information is both transparent and private, which makes it a perfect architecture for the IoT. This is accomplished by separating identity verification from transaction validation. Thus, all the attributes of a particular person can be known without knowing his or her identity. This is possible because blockchain employs avatars as an information processing mechanism to preserve individual privacy.
When we look closely at how blockchain works, we discover that it processes information very differently from traditional IT systems, which are essentially hierarchical structures. Accordingly, data are organized into centralized files and use control mechanisms to accomplish work (hierarchical coding instructions) and maintain security (passwords). Blockchain systems, however, are networked structures that record information in distributed storage and use consensus dynamics to do work and maintain security.
Before the internet, hierarchical architecture worked reasonably well because it was very difficult for bad guys to access proprietary mainframe IT systems. But that changed when the internet transformed the digital landscape into a hyperconnected world, making traditionally built systems vulnerable to security breaches. Once an intruder is in the system, he can easily access the centralized files, rewrite code, unilaterally commit fraud, or wreak general havoc. Because blockchain doesn’t use centralized files, if intruders find their way into the system, the distributed data is unintelligible. They are thwarted from doing harm because they can’t effect any action in the system without a consensus of the blockchain network.
In a world in which people are becoming increasingly concerned about the safety of their digital content, blockchain just might be the right solution at the right time.