Last month, our VP of Software and I attended a conference exploring blockchain technology. We both walked away thinking we’d just heard about something that would shape the world for decades and will fundamentally alter the ways enterprise companies interact with customers and do business.
Though best known as the technology behind cryptocurrency Bitcoin, blockchain technology represents a massive shift in the way businesses and consumers interact with each other. What the Internet did for the flow of information, blockchain will do for the flow of value.
“[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.”  — Sally Davies, FT Technology Reporter
In this case, value goes beyond just monetary transactions. By allowing direct interaction between two or more parties – transferring currency, services, digital assets such as music and art, or even proof of completed physical work – without the need for a trusted middleman, blockchain has the potential to disrupt dozens, if not hundreds, of professions and industries.
While finance and banking will face obvious disruptions, blockchain technology allows the instant exchange of any type of digital asset or data, impacting everything from voting to real estate to manufacturing processes. It will also help drive massive growth in emerging systems like the Internet of Things and new peer-to-peer economies.
That may sound scary, but while blockchain may disrupt current systems, it also represents massive opportunities for businesses and consumers. This great blockchain explanation sums up the opportunity nicely.
Like any new, disruptive system, blockchain requires a complete shift in thinking and – I’ll be honest – a number of intuitive leaps to understand complex and complicated ideas. As business leaders and innovators work to understand the impact of blockchain on their industries, here are a few important terms and concepts to keep in mind:
Distributed Ledger – Distributed ledgers form the foundation of the blockchain. Using a public or private peer-to-peer network, a distributed ledger stores data across decentralized nodes rather than single private servers. Paired with strong cryptographic marking, the decentralized nature of the ledger allows all parties within the ledger to build consensus around the veracity of value exchanges and ensure accurate, transparent transactions. Changes to data in one node must be confirmed and validated by every other node through the process of consensus.
Consensus – At a high level, consensus algorithms validate changes made within a distributed ledger. Ledgers reach consensus when a majority of nodes on the network contain the same validated data to prove an accurate transaction. This distributed, collective decision-making allows the entire network to confirm that work has been done or value exchanged before creating a record. In the case of Bitcoin, these algorithms ensure that every node in the network validates the work of any single Bitcoin “miner” before adding it to the chain.
Blockchain – A blockchain is a specific form of distributed ledger providing a shared, unchangeable database of all transactions in a peer-to-peer network. Transparent to the network, the full history of exchanges between peers is recording in blocks. Each new block of data, recording changes, is chained to the next block to create a transparent record of all transactions within the ledger. Blockchain technology builds upon ledgers by allowing business logic to single transactions, and not just within the database or application layers of a business.
“While this has clear applications in finance and currency, companies like Walmart and IBM are creating blockchains to clearly track and record the supply chain of food products sourced and delivered around the world.”
Smart Contracts – One of the most promising applications of blockchain, smart contracts represent self-executing legal contracts where clauses are written by developers, not attorneys. In the enterprise, smart contracts may enable low-cost, low-overhead contracts to execute almost instantly with compliance and enforcement built into every transaction.
Ethereum – Already used by a number of organizations looking to build enterprise blockchain applications, Ethereum looks to be the blockchain of choice for global trade and management, providing a public blockchain platform supporting enterprise applications and networks.
Hyperledger – Alongside Ethereum, the Linux Foundation’s Hyperledger offers an open-source blockchain platform aimed at global business transactions and supply chain optimizations. Backed by large enterprise partners like IBM, Hyperledger is working to constantly optimize the reliability and performance of distributed ledgers and enterprise-level blockchain software.
While blockchain remains a nascent technology, business leaders should begin to view it as the next wave of critical application development to improve business processes and streamline operations. Although blockchain’s ultimate promise is the removal of middlemen and business intermediaries, this shift will require significant new software and application layers for the enterprise to deliver ongoing value to customers.
In the coming weeks, we’ll talk more about how companies can begin to build software to support the new business interactions that blockchain will introduce.