Databases. We use them as warehouses of information. At their simplest and with a nice user interface they provide the underpinning to the familiar office spreadsheet. A greengrocer may use one for monitoring stock. A window cleaner may use one for tracking jobs and invoicing. A librarian may use one for managing book loans.

A blockchain is similar to a database. You might have heard a blockchain described as a ‘digital ledger’, which is a database by another name. And, like a normal database, a blockchain serves a practical purpose – whether monitoring stock levels, tracking jobs or managing book loans.

Data added to the blockchain forms a ‘block’. Consequent data is inputted in the form of blocks, adding to the chain. The result? You guessed it: a blockchain. Think of it like a chronological list of entries on a database.

But this is where the similarities end. Blockchains have two distinct and defining advantages over databases: transparency and security. Let’s look at transparency first (and come back to security later).

Databases tend to be administrated by a central party. In this sense, they are considered ‘centralised’. The greengrocer, the window cleaner, the librarian – they are all the central administrators of their own databases, and they keep their databases to themselves.

Blockchains, on the other hand, are transparent. They are distributed and used in peer-to-peer networks during transactions. All ‘peers’ involved in any given transaction have, through their matching copy of the blockchain the ability to see the ‘world state’ of that transaction whenever they want.

You’re probably wondering what this all looks like in the real world, so let’s imagine a simple, end-to-end application of a blockchain system.

 

FLORENCE AND HER WINE BLOCKCHAIN

Florence owns a boutique wine shop in Edinburgh. She’s passionate about wine and has built up relationships with the people behind the wines she stocks – but the supermarkets claim to be ‘independently sourcing’ their wines too, and are selling them at very competitive prices.

Florence decides to prove to her customers that she intimately knows the source of her wines, and to share this proof with them. She partners up with a blockchain specialist to create a ‘grape-to-glass’ blockchain for her wines.

Florence’s blockchain is an example of a private, or ‘consortium’, blockchain.

A few months later and the blockchain – and an accompanying app – is ready. A customer browsing Florence’s shop picks up a bottle and sees that he is able to scan the bottle with his smartphone. Immediately, he is presented with the full life cycle of this particular bottle. He is able to see that its life started out in August of the previous year, on an organic vineyard in the south of France. It was here that the grapes that went into producing the wine in the bottle were harvested, by hand.

That very same week the grapes were picked up by a transporter and delivered to a local wine press. Here, they were pressed, and the juice left to ferment into wine.

Following six months of fermentation, the product was on the move again, this time to a nearby bottling plant. After bottling, corking, labelling and packaging, the bottles – now in cases of nine – were transported to a distribution hub near Paris. Here, the case that contained the bottle in question was placed on an aeroplane destined for Edinburgh.

Once the case arrived in Edinburgh, it was transported to a local distributor and delivered to Florence’s wine shop.

Thoroughly impressed with what he’s seen, the man decides to purchase the bottle. That evening, over dinner, he decides to show his partner the lifecycle of the bottle of wine. He proudly goes through it all again, but just as he gets to the end he realises that a new ‘block’ has been added. The blockchain has recorded his purchasing of the wine. Cheers, Florence!

THE DEFINING BENEFITS OF BLOCKCHAIN

Florence’s blockchain is a nifty little tool, and it’s easy to see how it might appeal to her customers. After all, transparency is big business today.

But there’s more to it than meets the eye. As one of the defining characteristics of blockchain, transparency runs throughout the length of Florence’s blockchain, and not just for the benefit of the customer. At any point along it, the peers involved – the grower, the presser, the bottler, the distributor and the retailer – can access the data in real time.

Florence’s accountants might also want in on the action. So, too, might the accountants dealing with every other peer involved, right back to the grower. The grower himself might want to include the soil inspector, who’s hired to assess his vineyard’s organic status on a regular basis. The chain could also be extended to include the bottler’s glass supplier for even fuller transparency. And what of the cork supplier? Where did the cork come from?

You get the idea.

Bear with us if you think this sounds like standard supply chain management because we’re only just getting to the juicy part.

We mentioned earlier that security was the other defining characteristic of blockchain. Florence’s blockchain is an example of a private, or ‘consortium’, blockchain. Beyond having been granted access to the data, the peers involved have also been given the status of ‘colluding validators’ – that is, they are collectively responsible for validating the data fed into the chain. Every time data is added, the relevant peers involved share the job of verifying the transaction.

For example, in supplying the presser with a batch of grapes the grower creates a digital contract specifying the type, quantity and condition of the goods delivered and signs it. The presser, upon agreeing to the terms of the contract and receiving the grapes as per the terms of the contract, signs too. A version of the signed contract is published on the blockchain, timestamping the transaction.

It would be difficult, for example, for the grape presser to lie about the number of grapes he had received from the grower because this data would be visible to the entire network of peers

Remember, there is no central computer administrating the blockchain; instead, the blockchain exists on the computers of every peer, and is updated in real time, without the possibility of data being altered. All peers all have access to the same ‘version of the truth’, so to speak.

What’s more, as the whole verification process is carried out cryptographically, all transaction data is immutable. Cryptography is a method of disguising and revealing (i.e. encrypting and decrypting) information using mathematics. Blockchain relies on very complex and automated cryptography, but the basics can be grasped easily enough. Have a go yourself: The encrypted message is ‘DKIEWBXW’ and the decryption key is ‘shift each key one to the right’. Answers on a postcard, please …

Suffice it to say, blockchains are highly resistant to corruption. It would be difficult, for example, for the grape presser to lie about the number of grapes he had received from the grower because this data would be visible to the entire network of peers. Similarly, if the grower were to be stripped of his organic status, he’d have a hard time lying about it in plain sight.

THE FUTURE OF BLOCKCHAIN, AND HOW IT COULD AFFECT MARKETERS

Private blockchains are proving mightily attractive to the supply chain industry, and understandably so. But what about public blockchains?

It’s likely that you’re already familiar with the most famous application of public blockchain technology: cryptocurrency. Cryptocurrencies are digital currencies that run on blockchains set up in a similar way to Florence’s blockchain, only they’re visible to anyone with an internet connection, not just selected peers. When Person A sends one Bitcoin, for example, to Person B, that transaction is published on the blockchain as a block and cryptographically verified. The resulting data is cannot be overwritten and is visible to anyone.

So where else can the technology be readily applied? The answer to that is any scenario where ‘property’ is transferred

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Crucially, cryptocurrencies remove the need for central authorities like banks, money transfer services and other middlemen, in the same way, that a blockchain in the supply chain removes the need for physical contracts to be manually distributed and signed by relevant peers – accountants, insurers and so forth. In this light, blockchain can be considered a global decentralised source of trust.

So where else can the technology be readily applied? The answer to that is any scenario in which ‘property’ is transferred. We’ve already seen its use in the supply chain, but consider how it could affect retail loyalty schemes, copyright schemes, voting, secure access to belongings, prescription drugs, property title transfers, music royalties, taxation, equity trading, wills and inheritance – blockchain networks as yet unimagined will evolve to meet societies’ needs as the technology enters the mainstream.

It’s a reality that the opportunities afforded by blockchain are often marred by the difficulty of getting our heads around the technology in the first place. In this sense, the dawn of blockchain is remarkably similar to the dawn of the internet. Most people didn’t see – didn’t understand, even – the potential of the internet when it was in its nascent stages.

But some people did, and in doing so they changed the world.