Blockchain is one of the latest buzzwords to hit the IT sector, inspiring small entrepreneurs and large companies alike to try and solve all kinds of problems with it. But what is the blockchain, how does it work, and does it have any real potential to help your small business?
Back in 2009, the mysterious Satoshi Nakamoto released bitcoin, a digital currency that was supposed to be an alternative to cash. People could save it and send it to each other without relying on a bank to manage everything.
Traditionally, banks had played an important role in financial transfers. If you wanted to send money to someone without giving them hard cash, the bank had to keep a ledger to determine who had sent what to whom. That way, if someone claimed they didn't receive an electronic transfer or hadn't cashed a cheque, the bank could check its ledger and arbitrate.
Without a bank, Nakamoto needed every user to record their transactions in their own ledger. But if someone tried to alter their ledger, creating a dispute over payment, who would decide which record was right? The blockchain solved that problem. Everyone entered their transactions in a single ledger (the blockchain) that was copied to all of their computers. The ledger would group these transactions into blocks, and then 'seal' them with a code. That code is based on a mathematical problem that needed lots of computing power to solve. To seal a block, a network of computers called miners competed to crack the code. The winner sealed the block and got some bitcoin of their own in return.
Tampering with transaction records would mean changing the code for its block, which would involve calculating it again. The fraudster would have to do that without the miners' help. That's impractical. The codes might be hard to create, but they're easy to check, so because everyone can see the blockchain, any discrepancy quickly comes to light.
It sounds complex, but it's an ingenious system that created a global financial network. Bitcoin's volatile price has made it more of a speculative instrument than a currency these days, but it also spawned other blockchains that are more potentially more useful for companies.
One of the most popular is Ethereum, which enables people to run entire software programs on the blockchain. Its advocates hope that these programs, called smart contracts, will replace many cloud services, especially those that used to rely on a middle man to organize and manage things.
Smart contracts focus on areas like logistics, compliance, and trading. We've seen blockchain-based networks for tracking the provenance of gold across its supply chain, for example, and for tracking refrigerated containers in logistics networks to record and verify that their goods have been kept at the right temperature.
What does all this mean for your small business? Today, not much. Blockchain and related technologies are still early in the Gartner hype cycle, which. This means people are putting the word 'blockchain' in front of pretty much everything to give it some extra marketing juice. Many of the projects that have piloted the technology are intended for large companies or consortia in industry verticals. They won't affect the average SMB.
The applications that could be technically useful for SMBs include things like decentralised digital notarisation, where you notarise documents on the blockchain. Another is blockchain-based storage, where you store your data in encrypted form across lots of blockchain-connected computers. They're intellectually interesting, but just too out there right now for most small companies to consider, especially when there are perfectly good traditional alternatives (such as a regular notary or a cloud-based storage service).
Blockchain has its place, but outside of the large vertical consortia we're seeing, a lot of the chatter seems to come from the entrepreneurs launching blockchain services. Keep an eye on it, but don't expect it to have a significant impact on your small business for some time to come.