Blockchain basics

Overstock.com, the Securities and Exchange Commission, cryptocurrency, logistics … any of these topics may have put blockchain technology on your radar. 

And now you may be thinking, what is it exactly, and why should I care?

First, here’s why you may want to keep an eye on this technology. The technology will disrupt the way many business systems operate, from logistics to inventory control to payment systems, and major corporations already are implementing it, as outlined in this article (https://www.furnituretoday.com/business-news/major-corporations-apply-blockchain-payments-finance-logistics/). Overstock.com, the home furnishings e-commerce company, is investing heavily in the technology through its subsidiaries Medici Ventures and tZERO.

With these major players developing the potential of blockchain, disruption looms large.

So here’s a primer on how blockchain works:

Consider a factory in China that makes a table. When it creates that table, it also creates a block of data to document its existence and everything about it: the components, date of fabrication, the day it shipped, etc. This initial block of data gets a unique hash, a number-and-letter sequence that functions like a fingerprint: there will be no other hash exactly like it.

Every time something happens to that table as it travels through the supply chain, a new block of data is created. Each new data block gets its own unique hash, plus it carries the hash of the preceding block of data.

This pair of hashes performs several functions. First, it links all the blocks of data together, like a chain, hence the term blockchain. Second, it gives each block a unique identity. And third, it helps keep the blockchain secure.

While data can be added to the blockchain (in the form of new blocks), it’s nearly impossible to change the data inside existing blocks. If anything inside a block of data changes, its hash changes, giving the block a new identity: It is no longer the same block. All subsequent blocks in the chain also are now invalid, because they link to a block with an invalid hash.

Some blockchain models make it extremely difficult to create those new hashes, by requiring what’s called a proof-of-work. Proof-of-work is like a task a computer would have to perform in order to generate all those new hashes. Make a proof-of-work task difficult and time consuming enough, and it is virtually impossible to tamper with the data.

Another reason a blockchain is secure, and also transparent, is that the blockchain does not reside on a single server.

Blockchains rely on a peer-to-peer network of computers, which is why it’s often summarized as a “distributed” ledger: no single entity or company is in charge of it, not the factory nor the shipper nor the retailer.

Creating a new block of data in the chain is a bit like hitting “reply all” in an email chain: Every member of the network gets it. And if everyone validates the new block of data, it gets added to the chain. So in effect, everyone on the blockchain network can see the same thing, all the time.

Remember the proof-of-work tasks? A popular element of a proof-of-work task is requiring validation of every block by every computer, and consensus among all of them to any changes in any of the blocks, including all new hashes. This is a very effective deterrent to tampering.

There are different types of blockchain models, and businesses such as IBM and Amazon Web Services are developing iterations of this technology to suit various real world applications.

The implications are huge and imminent. Imagine applying blockchain to consumer payments, health care, banking, voting, logistics, food sourcing, insurance, real estate sales, government records and charitable donations.

Blockchain technology already is being applied to these industries and systems. And it will change them fundamentally.