BLOCKCHAIN TECHNOLOGY: A PRIMER FOR CONSULTANTS

A  few months ago, I was speaking at a Blockchain Meetup of over 500 attendees in Toronto. Several speakers remarked that living in the Blockchain space was like being in 1985 during the Internet’s early days. More recently another speaker noted that we are now in 1989, relative to the Internet era. “Wow,” I remarked, “we’ve grown four years in five short months, that’s 10 times (10x) growth for you!”  

Blockchain technology is moving so quickly that it’s challenging to keep up even for those of us within the area. And many professionals don’t yet understand the basics let alone the many critical subtleties one must consider when assessing it. One could argue that even some of the popular narratives and explanations of blockchain are somewhat dated and may even be misleading. So, let’s get started with the key tenets of blockchain, and then address where the technology is headed in the near future.

What is Blockchain? 
Blockchain is a distributed network of computers ("nodes") that utilize the underlying infrastructure of the Internet to validate and process transactions of some value. These transactions are validated and added to "blocks" of data that are processed in a pre-defined interval of time (i.e. 12 seconds, 10 minutes, etc.).

Blockchain uses existing cryptography schemes to append new blocks to previous blocks. This way, blocks are never overwritten or destroyed, just appended to, forming a chain of blocks, hence the term "blockchain". This chain of blocks is synchronized across all of the nodes by providing an economic incentive to the node that is able to first validate and then add the block to the chain by solving a complex mathematical task.

Each node on the blockchain network maintains the same chain of blocks, also called a "ledger" as in an accounting ledger of records. This chain of blocks or ledger of records is distributed across multiple nodes that agree to the correct state of the ledger through the process of consensus. Different consensus mechanisms exist, but the most common one is called proof-of-work, as described here. Once a block has been added to the blockchain, it becomes an immutable record. 

There are many different blockchains - public, private and consortium blockchains. In a public blockchain, anyone can join and become a node; all transactions are publicly available, the value of the transaction is public, and the identity of those parties who are sending / receiving the transaction is pseudo-anonymous. Private and consortium blockchains also exist where rules (governance models) can be pre-defined and roles and consensus mechanisms can be managed.

Blockchain is not new: in fact, the earliest blockchain, known as Bitcoin, has been functioning successfully since January 2009. Yes, Bitcoin has some negative perceptions, but don’t blame the technology or the concept for the wrong-doing of some people. And more importantly, don’t ignore it and either miss-out on the world’s biggest opportunity in our era or end up becoming irrelevant in a few years. Bitcoin is one of many different flavours of blockchain platforms in existence today, Ethereum and Hyperledger Fabric being a couple of other popular blockchain infrastructure platforms. 

Blockchain has been called the 'next Internet', the 'Internet of value'. What is this new Internet of value exactly? Let me explain this through an example. The current Internet facilitates communications and the sharing of information. It is great at it: we can send each other information, we can learn, collaborate, socialize, and work using the Internet. In fact, one could argue we couldn’t function without it. 

The Internet is great at sharing information. I can create this article, retain the master copy and post it online for you to read. You have a version of my article, but I retain the master. Alternatively, I can also email you a copy of my article. In either case, if I change the master article, and don’t post it online or send you an update, you now have an outdated version. To overcome this problem, solutions like Google Docs enable people to share documents and collaborate online in real time. This way, everyone shares the instance of the article. 

All of the afore-mentioned scenarios work when the object (as in the case of my article) has no tangible value. Think about something of value such as money: it would not be such a great thing if I sent you a copy of a dollar and retained the original. That would be fraud. Yes, one can send and receive money online and via banks, but when you think of doing this across international boundaries or for a small fraction of money, then the existing solutions are too expensive, take too long, or just cannot handle the fractional value of the transaction. 

This is where blockchain comes in. It leverages a combination of several existing technologies innovatively to address the challenges of the traditional Internet and of existing systems (in this example – financial systems), and enables the transfer of value (cryptocurrency currency, digital assets of any kind) almost instantly at a fraction of the cost and time of the traditional way. It also stores the record of such a transaction in an immutable and tamper-proof manner by distributing the record across a large distributed or decentralized network. 

Trouble in Paradise?
While the narrative I have shared thus far has been widely discussed - and is true for public blockchains - the recent spike in cryptocurrency values and network congestion (as a result of scaling limitations of public blockchains) have led led to increased cost of transactions. And there is a trade-off between how much you pay for your transaction to be processed quickly and how long you wait. Therefore, this early narrative of bitcoin blockchain and other public blockchain needs some refinement. 

To really appreciate the approach to blockchain you would want to adopt for your organization or startup, you really need to learn about this in a meaningful way: the blockchain and distributed ledger technologies and architectures, the blockchain ecosystem, smart contracts, decentralized autonomous organizations, cryptocurrencies and tokens, business opportunities, disruptive threats, and brand new business models being created. Understanding governance models and how to plan and implement the right blockchain solution are critical to success. 

Time Flies Faster in 'Blockchain space' 
First, the rate at which blockchain activity is growing has fast outpaced what we saw at similar stages of the Internet. This is understandable, as most disruptive technologies are disrupting at a faster rate now. Of note though, is that not only is the activity accelerating exponentially in blockchain, blockchain has eclipsed most of other trending tech over the last few years (see Figure 1 below).