Although still an emerging technology, Blockchain is only now beginning to feature in everyday business discussions, so for those yet to come across it, here is a simple explanation of this revolutionary technology.
Blockchain allows individuals and organisations to make instantaneous peer to peer transactions on a network. These transactions are not only completely secure, but thanks to the way blockchain works, each one is recorded and cannot be altered afterwards.
Blockchain is still being tested and developed, but the features detailed above explain why the financial and legal sectors have been quick to adopt the technology.
The clue is in the name
In simple terms, blockchain as quite literally a chain of blocks, with each block representing data and the blocks joined in a chain, in the order in which they were added.
The word chain is important, because it points to the nature of the technology, with each block connected to the blocks behind and ahead of it, much like links on a chain.
The point at which the blocks connect with each other, a unique encrypted signature joins them, with half on each of the connected blocks. This makes it almost impossible for a block to be removed or a new one inserted, as the connections would not match.
Some people refer to it as distributed ledger technology, because it’s similar to a ledger, but in reality blockchain is just one type of distributed ledger – the terms are not interchangeable.
It can still be thought of as a ledger however, because that’s how most blockchains work, with each block of data representing a new transaction on the ledger, which could be a document or record of a sale.
This record of a transaction has to be verified before it can be added to the blockchain, with all users of the particular ‘network’, agreeing beforehand which transactions are valid and which are not.
It is this ‘many eyes’ system of security that’s one of the most attractive reasons for individual and businesses to use blockchain technology.
It is now accepted that blockchain is perhaps the most transparent and trustworthy source of information because it cannot be altered, with verification ensuring many different people are involved.
Blockchain transactions also get processed and verified more quickly than alternative systems, with most taking only milliseconds to be processed, which only adds to its appeal.
In a nutshell
Blockchain is secure because everyone in the network has their own copy of the ledger and nobody can make a change without everyone knowing about the change. In more detail, blockchain can be broken down into three important parts:
The network – this depends on the blockchain permissions. It can be public and open to anyone with a computer, or private and accessible only by specific members. Each computer is called a node and represents one part of the network of participants.
Network protocol – these are the ‘rules’ that defines how all the nodes can talk to each other. Typically, each node has its own copy of the blockchain ensuring protection against mistakes or fraud. This process is called ‘fault tolerance’ and makes blockchain unique.
Consensus mechanism – this describes the process used by the network to verify blockchain transactions and by which an agreement on what the current, accurate blockchain is reached.
This is a constantly evolving technology, but given its strengths of transparency, security, speed and the lack of middlemen taking transaction fees or charging penalties, it is clearly here to stay.
Given our strength in the legal sector, it’s undoubtedly something likely to crop up on our radar more and more, as our law firm clients come to terms with this exciting new technology. Please get in touch if you need support with any aspect of this or any other current technology.