Everyone seems to agree that blockchain technology, at least in theory, has the potential to transform the world. The first and the most well-known use of blockchain technology has been to exchange bitcoin. However, blockchain technology has come a long way since then. Today, start-ups are leveraging blockchain technology to revolutionise everything from borrowing money to storing health data. Some experts are so optimistic about blockchain technology that they compare it to the advent of the internet in the 1990s.
In this beginner’s guide to blockchain technology for business, we look at some of the basics of blockchain technology and its current status in Australia.
What is Blockchain?
Blockchain is a distributed ledger technology.
Imagine an online platform that allows transactions to occur and records those transactions on a digital ledger. This digital ledger is distributed to every computer that has access to the platform, thereby creating a common record of all the transactions occurring on the platform. A majority of computers connected to the platform must verify and approve any transaction before that transaction is approved, and only approved transactions are recorded on the digital ledger.
Put simply, this is what blockchain technology does. It enables an online database to exist where peer-to-peer authentication approves and verifies transactions, and each approved transaction is recorded on a digital and distributed ledger.
Public vs. Private Blockchain
Blockchains platforms are either public or private.
Public, or permissionless, blockchains are platforms that are completely open and decentralised. Therefore, any person can access and participate in these blockchains. There is no central entity that has the power to control the membership or the actions of the participants in that platform. Blockchains platforms like Bitcoin and Ethereum are examples of public blockchains.
Private, or permissioned, blockchains have all the features of a public blockchain, except a central entity controls who can transact and participate in the blockchain and how participants act. Many companies wanting to utilise blockchain technology are also increasingly opting to use a private blockchain to have privacy and set rules that participants of the platform must adhere to.
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The Technical Make-Up of Blockchain
Blockchain technology gets its name from its technical make-up – ‘blocks’ connected by cryptographic ‘chains’. Each block in a blockchain platform contains:
- data stored on the blockchain, which will vary depending on the type of blockchain – in the case of bitcoin, it would be the list of transactions involving the transfer of bitcoins;
- a cryptographic fingerprint unique to the block, known as a hash; and
- the hash of the previous block. The hash of the previous block on the subsequent block is the ‘chain’ that connects the blocks in the blockchain.
Nodes are the computers connected to the blockchain platform, which has a copy of the digital ledger and verifies the transaction. ‘Mining’ is the process of verifying transactions on a blockchain.
Key Features of Blockchain Technology
The key features of blockchain technology are:
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Consensus |
Each transaction on a blockchain platform is verified and approved by peer-to-peer authentication performed by nodes. The consensus required to approve each transaction prevents fraudulent transactions from being approved. It is extremely difficult, if not impossible, for the majority of the nodes to be tricked into approving a fraudulent transaction. |
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Decentralisation |
The peer-to-peer authentication where the entire network verifies each transaction removes the need for a centralised authority to verify and approve transactions. This enables two parties who do not trust each other to transact without needing a third party to oversee the transaction. |
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Immutability |
Blockchain technology does not allow data or transactions stored in the blockchain to be changed or tampered with. This ensures the integrity of the records on the blockchain. |
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Transparency |
Blockchain technology provides transparency by making the digital ledger with the record of all the transactions executed on that blockchain to be available. |
What is Next for Blockchain Technology?
Blockchain has the potential to impact almost every industry. At present, the financial sector primarily uses blockchain technology. However, other areas like health, energy, real estate, logistics and supply chain management can benefit from this technology.
While businesses have welcomed blockchain technology, regulators around the world are still playing catch up. The lack of clarity in regulation often delays the adoption of blockchain-based solutions. This is because it is unclear what is legal and illegal in different jurisdictions. However, we can expect a more robust legal framework governing technologies like blockchain to come into force worldwide, including in Australia, in the coming years.
Key Takeaways
Blockchain technology has moved from a theory to a mainstream technology in the last two decades. It has the potential to transform the world. Features of blockchain technology like consensus-based and decentralised peer-to-peer authentication, immutability and transparency offer the possibility to change how almost every industry functions today. If you have any questions about blockchain technology or how it can be implemented within your business, contact LegalVision’s Legal Transformation lawyers on 1300 544 755 or fill out the form on this page.
Frequently Asked Questions
There are two types of blockchain platforms; public and private. For example, a private blockchain will have a central entity that can control how participants act. A public blockchain, however, will not.
At the moment, blockchain technology features primarily in the financial sector. However, with more robust legal framework in development, blockchain may feature in many more industries in the future.
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