In my capacity as a Research Fellow at Amalgam Insights, I am constantly asked questions about blockchain. Whether it’s inquiries from the press, vendor discussions, or conversations with IT practitioners and business people, no matter what topic the conversation starts with, the subject often turns to blockchain. This is driven by two factors: intense interest in the possibilities of blockchain and understandable ignorance of the “what, why, and how” of developing applications based on it.

As an aside, given the skill set required to create blockchain applications from scratch, the need for more packaged solutions is evident. This creates opportunities for solution providers and cloud vendors to make blockchain a black box solution.

Below are the most frequently asked questions I get and, hopefully, some answers that make sense.

Your Biggest Blockchain Questions, Answered

Q. What is blockchain, conceptually?

Blockchain can be described as a secure, distributed ledger. It is implemented as a series of data structures that tracks objects and the transactions associated with them. These objects are a series of blocks connected together into a chain (hence the name blockchain). Blocks can be added to the end of the chain but not easily to the middle or beginning. Each block has a digital signature that requires a lot of computer resources to calculate. To add or change a block requires recalculating all of the digital signatures for all of the blocks after it, an expensive compute operation. The chain is then distributed to all participants.

This means it is hard to alter blocks or to change the chain, except to add to the end, without everyone knowing it. This makes blockchain immutable and secure but without the need for a central authority.

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Q. What is blockchain good for?

Usually, the question is framed in terms of use cases for specific industries, but it boils down to something simpler. While there is a sense that blockchain may be a useful technology, there is a lot of confusion about with can be done with it.

The simplest answer is blockchain can be used to build applications that require trust where there is no central authority conferring that trust. An example of this is networks of business partners such as supply chains or contracts. In these instances, there are groups of equal participants who need to trust the transactions they have with each other.

Two examples of this are the Maersk–IBM blockchain project for global shipping, and HSBC’s recent announcement of the use of blockchain to manage trade financing for a shipment of soybeans by Cargill. All involved were equal participants in a global network where trust in the transaction was key.

Q. Is blockchain immutable?

Yes, but you have to know what that means in this context. Immutable usually means something can’t be changed. That’s one of the reasons there is so much interest in blockchain. Since it is immutable, there is trust that the data has not been tampered with.

Blockchain is practically immutable. Not utterly, completely, 100 percent unchangeable. Because it takes a lot of computer resources to change a blockchain, there is a high degree of confidence that the series of blocks in a chain are exactly what they are supposed to be. This is bolstered by the distributed nature of blockchain. Since many copies of the blockchain can be held by many people, it is easy to detect when one copy of the blockchain isn't right.

That doesn’t mean a blockchain can’t be hacked, just that it is incredibly difficult to do so. That makes it impractical to alter a blockchain but not impossible. If, in the future, computers become much faster at calculating the digital signatures and hashes that point to other blocks, altering a blockchain may become much easier and they will no longer be considered immutable. Ironically, some of the same vendors that are pursing blockchain are also developing quantum computing. Quantum computing has the potential to provide a leap in processing speed that could upend blockchain.

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Q. Are blockchain and bitcoin the same thing?

This is what I call a “square-rectangle” question. Not all rectangles are squares but all squares are rectangles. In the same vein, all bitcoins are blockchain but not all blockchains are bitcoin. Bitcoin is a virtual currency that uses blockchain to maintain trust amongst economic partners. It is just one of many virtual currencies and a single example of a blockchain system.

Virtual currencies use blockchain as the technical underpinnings because it creates trust in the system, a vital aspect of a currency. Unlike real-world currencies, bitcoin is not backed by anything except the compute power that was used to creates blocks. These may be “stolen” by hacking a computer to create new blocks without the owner knowing it. The surrounding technology of wallets and exchanges can be (and has been) hacked to allow legal transfers of bitcoins to someone other than the rightful owner.

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Q. I understand what it is and how it's used, but how do I develop blockchain applications?

After months of mainly explaining use cases for blockchain, people are finally asking me the “how” question. As the use cases become clearer and the benefits grow more obvious, developers are starting to wonder how they will build blockchain applications.

I suggest using tools and frameworks from reputable vendors or communities. Starting from scratch is time consuming and may require new skills. Meanwhile, code needs to be thoroughly trustworthy or you undermine the basic purpose of blockchain.

One possibility is Hyperledger. Hyperledger is an open source framework, promoted and managed by the Linux Foundation as a project, and supported by major vendors including IBM, SAP and Intel, as well as a host of other companies. The projects include software for creating, deploying and managing blockchain in an enterprise setting.

Ultimately, blockchain has the potential to create safe and secure, yet decentralized software that mirrors and enforces the trust relationships that are key to many multi-part business processes. It isn’t magic. It will not solve all business process problems nor take the place of legal controls. Blockchain will, instead, enhance these controls and smooth those processes. This is why it has a future in business.

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