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What is Blockchain?

11 November 2019

A blockchain is primarily a shared database for recording transactions, cryptographically chained so as the record cannot be altered at a later date, and can be shared easily between parties. The blockchain can either be very open and decentralised (permissionless), or a more closed system with controlled access points (permissioned).

This article provides an overview of blockchain basics, an insight into its applicability to major coporate and financial institutions clients, and how it could affect your business in the medium and long term.

How will it impact your business?

The transformative potential of blockchain technology has been discussed extensively in the media. In 2015 over US$1bn was invested in Bitcoin, blockchain and associated technologies, with the most interest coming from banks, corporates and major software firms.

This article agrees with much of the recent consensus that the attributes of the technology behind Bitcoin have significant transformative potential for the financial services sector, government and industry.

However, it unlikely that Bitcoin will be transformative in its current state. However, for corporations relying on large data pools that need to be updated securely and agreed upon by multiple parties, blockchain solutions could hold significant benefits.

Weaknesses in the Bitcoin blockchain

  • Data privacy – if they know your wallet address anyone can see what you have done on the Bitcoin blockchain
  • Anonymity – challenges for KYC and financial crime controls as wallets are by definition pseudonymous
  • Governance – Unregulated and no governance around core developments
  • Validating nodes – are in a variety of locations globally, and of varying risk categories
  • Lack of consumer protection – once an asset is stolen, there is no way to overwrite code or refund money
  • Speed of settlement – currently between 10 minutes and several hours
  • Energy usage – variably estimated to be somewhere between 250MW and 1GW, which per transaction, is enough energy to fuel around 200,000 US houses, or roughly 1.6 US households’ daily energy consumption per transaction

Attributes that make blockchain useful

  1. Data immutability – a complete record over time – guaranteed by the tamper-proof mathematical process of ‘hashtag’ previous blocks together
  2. System resiliency and speed - real-time movement and settlement of assets registered, provided by the distributed nature of processing – many copies, not relying on one code
  3. Transparency and consensus – shared, agreed data
  4. Automating business logic – ability to write code into the database that will execute if certain conditions are met i.e. smart contracts

Executives should ask if a potential use case needs one of these characteristics to be successful – if not, a traditional database may be a better solution.

For specific use cases around the core attributes and key takeaways Read the full report PDF 980KB