What is blockchain?
Blockchain was introduced anonymously under the alias ‘Satoshi Nakamoto’ in 2009. Essentially, blockchain is a distributed, online ledger that records a history of digital transactions, without the need for a regulating authority. Its name aptly describes its function:
A ‘block’ is a file which contains a group of transactions. Each block contains three main pieces of information. Firstly, data about the transactions themselves, including the value of the transaction, the date it took place and the transaction participants. The number of transactions within a block varies, with one block on Bitcoin, for example, able to store up to 1mb of data, which can equate to several thousand transactions. Secondly, a block contains a unique code consisting of a series of letters and numbers – called a hash code – which is used to identify the block. Thirdly, a block contains the hash code of the immediately previous block.
The ‘chain’ element refers to the fact that each block is strung together in a chronological and linear arrangement. Perhaps the chain’s most important feature is that once a block has been added to the chain, it cannot be removed or modified. This ensures greater security, as the permanence of the block precludes hackers from removing or changing it. Any attempted change to the block will result in a new hash code being created, thus rendering a block unchangeable once added to the chain.
Features of blockchain
Blockchain’s distributed ledger enables thousands of computer systems all around the world to access and validate transactions. This sophisticated layer of verification provides a comprehensive and secure system of recording digital transactions.
Transactions recorded on blockchain only occur between parties to the transaction, without an intermediary – such as a bank – being needed to facilitate the transaction. This decentralised feature means no transaction costs are required, as no fee-charging intermediaries are needed to operate the process.
Once a block is added to the chain, it is immutable, meaning it cannot be removed or modified in any way. This shapes blockchain as being immune to corruption, with hackers unable to alter any transactions stored within a block, once it is included in the chain.
The Bitcoin Blockchain
Blockchain was initially created to serve as a public ledger for cryptocurrency Bitcoin. The Bitcoin blockchain remains one of the most well-known and popular blockchains today.
How does the Bitcoin blockchain operate?
Bitcoin uses blockchain as a platform to securely record transfers of bitcoins from seller to buyer. The process begins with a purchase request of bitcoins. This transaction is represented within a block, which may also contain other similar transactions. Then, the block is broadcast to an entire network of computer systems, called ‘nodes.’ Systems within the network must then validate the transactions. Upon validation, the block is permanently added to the chain, and cannot be removed or modified. The new updated version of the blockchain will now be used.
What makes the Bitcoin blockchain secure?
The Proof-of-Work system is one way in which the Bitcoin blockchain boasts an ultra-secure system. Proof-of-Work requires ‘miner’ nodes to race to solve a complex computational problem, known as a hash function. This problem requires extremely large processing power to complete and thus requires expensive hardware systems. Therefore, it becomes extremely expensive for malicious miners to attack the network, with these high costs aiming to deter hackers from infringing. The race amongst miners to solve the problem also promotes speed and efficiency in processing the transaction. The first miner to solve the problem is rewarded with newly minted bitcoins, meaning they have incentive to process the transaction as quickly as possible.
Blockchain’s security is also enhanced as blocks cannot be removed from the chain. Every block contains the hash code of the previous block. When a transaction is modified or altered, the hash code of the block is also changed. This new hash code will conflict with the hash of the following block, which includes the original, untampered hash. Thus, for a hacker to modify one transaction, they would subsequently need to modify every following block in the chain to ensure the hash codes remain consistent – a possibly never-ending task which makes blocks practically ‘immutable.’
Industries disrupted by Blockchain
Whilst the Bitcoin blockchain is the most commonly used blockchain today, blockchain technology can be adapted to store any type of digital information. It is thus often referred to as a ‘disruptive’ technology due to its potential impact in transforming industries as we know them today. Several emerging companies, across a broad range of sectors, have already implemented blockchain-based software in their attempts to replicate the Bitcoin blockchain and provide a secure system of recording digital transactions. We explore how blockchain can disrupt the banking, legal and healthcare industries and the emerging blockchain-incorporating companies within these sectors who look poised to grow.
Blockchain banking offers a cheaper, quicker and more secure payment alternative to traditional banking methods. Blockchain banking would involve banks issuing their own digital currencies, thus replicating a Bitcoin style blockchain, where cryptocurrency is used as a form of payment.
As blockchain is decentralised, meaning transactions only occur between the buyer and seller without involvement from a financial intermediary, no middleman service fees will be charged. Thus, this transaction cost is eliminated, resulting in a cheaper process. This is particularly useful for ‘cross-border’ transactions that involve payments between overseas parties. If cross-border payments were facilitated through blockchain, parties would save on bank service fees and exchange-rate fees.
Blockchain banking also offers a more efficient payment system, with payments being processed as soon as they are verified. Bitcoin transactions, for instance, take 10 minutes on average to be verified by miners, at which time payment is immediately transferred, regardless of the parties’ location. Additionally, due to blockchain’s immutable nature and its complex cryptographic secured network, transactions are extremely secure. This secure payment channel offers unrivalled protection from hackers and would thus enable payments to be highly safeguarded.
SuperMoney was founded in 2016 and operates a payment system that allows users to carry out payments through a variety of methods, such as QR codes or traditional bank transfers. The SuperMoney platform is built on a ‘Hyperledger Fabric’ blockchain which provides a chronological and immutable recording of transaction events. SuperMoney has graduated from several accelerator programs including the BMW FS Collaboration Lab 2018 and the Oracle Fintech ScaleUp Program 2019.
A large part of the legal services industry’s operations involve the processing and storing of sensitive and important information. Blockchain’s secure and accessible ledger can thus function as a perfect tool for this sector to utilise.
The legal sector can tap into blockchain’s advantage of securely storing contracts by incorporating ‘smart contracts.’ A smart contract is a digital code mapped out on a blockchain, that automatically monitors and executes legal agreements. Smart contracts can be used by companies in the legal sector where the triggering event of a contract can be measured digitally – such as when payment is made or public registries are updated. This eliminates contractual monitoring by lawyers and enables an automated, secure system of contract operation. The Ethereum blockchain is a popular blockchain that facilitates smart contracts and is used to execute them today. Ethereum even provides options for payment to occur through blockchain, using its own cryptocurrency: ‘Ether.’
Juro develops software that is designed to make the creation and signing of legal contracts easier for businesses. Juro’s system offers functions such as contract creation, negotiation, e-signing and analytics. Since its incorporation in 2015, Juro has secured £2.17m in funds.
ConveyancingBlockchain can also greatly simplify the conveyancing process, where property is transferred from seller to buyer. The conveyancing process involves many parties – such as buyers, sellers, both their legal representatives and both their banks – and many documents – such as transfer of land contracts and certificates of title. Dealing with this number of documents and parties often involves a very lengthy and complex procedure. However, this process can be transparent if details about the property and the relevant documents are stored within a block, and this block can be accessed by all parties. This would reduce correspondence between parties and requests for information, offering significant time savings, whilst also providing a secure space for confidential information to be stored.
Coadjute was founded in 2018 and develops blockchain-based software that aims to increase the transparency and speed of property transactions. Coadjute’s ‘Smart Property’ department is using a blockchain network to host data such as building records and utility services. This will enable relevant stakeholders to the property to access and collaborate on a single, trusted source of information. Coadjute raised £750k in September 2019 following a successful global test of its blockchain-based network in speeding up property transactions.
OpenBrix was founded in 2018 and uses blockchain-based software to provide a decentralised and transparent property management platform. This platform aims to provide a collaborative space which property owners, home buyers, tenants and landlords can transact and communicate.
The healthcare industry is inundated with healthcare data records, medical insurance claims and other pieces of important patient health information. All this data is stored in different systems however, with no common database. Blockchain offers an easily shareable and secure system of patient management. This could operate through all the patient’s data being stored within a block, which can then be shared with different medical institutions or practitioners. This would also ensure confidentiality as the block would only be able to be shared by the patient after their consent has been given.
Additionally, blockchain’s use in healthcare would result in a more efficient and streamlined process. Patients would not need to constantly provide their same medical information every time they visit a new medical institution or practitioner, with their data readily accessible on request and approval. This would also prevent the problem of data being lost and needing to be recollected, such as lost blood test samples which require repeated tests.
Since being founded in 2017, Genomes.io develops blockchain technology that aims to protect the storage of DNA data. Genomes.io uses the Ethereum blockchain to provide its users with more control over their genome sequence data. Users can then share their genome segments in a secure and anonymous manner.
Dovetail Lab was founded in 2017 and is a healthtech company pioneering the use of blockchain in the healthcare industry. Through Dovetail’s blockchain software, patients are now given increased access, visibility and control over their health records and data. Dovetail was acquired in November 2018 by Leeds-based healthcare software developer EMIS Group for £2.5 million.