In order to talk about blockchain, we first have to define it. According to technology gurus Don and Alex Tapscott, "The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value." Okay, we've got that out of the way, so what exactly is blockchain?
Invented in 2008 by Satoshi Nakamoto (whose identity himself is a matter of controversy) for the introduction of bitcoin, blockchain is a peer-to-peer decentralized database. It's peer-to-peer because it resides on whichever computers are joined to the blockchain network. Unlike the "cloud," blockchain requires the participants to download a client, which connects them to the blockchain. Since there is no centralized database, there is no way to hack into the blockchain, short of hacking into each and every computer connected to it. An analogy: suppose there was a semi-trailer with 10,000 apples. If one could break into the trailer, the apples would be vulnerable. That's the centralized database. Now, imagine 10,000 apples, each one in the trunk of different car. To get all 10,000 apples, the thief would have to break into 10,000 trunks. That's a bit oversimplified, but you get the picture. It's tough, nearly impossible, to hack a blockchain.
Currently, the bitcoin blockchain is the most prominent example of this technology. So, who cares? But think about it. A secure way of exchanging crypto-currency is one thing; a secure way of sharing sensitive data is another.
One of the first victims of the move to blockchain (if and when the technology reaches the tipping point) could be third-party payment processors. Currently, if you buy a product with a debit or credit card, either in a store or online, it is not your bank or credit card company that reimburses the merchant. It's the merchant's payment processor. The processor sits in the middle of the entire transaction, routing it to the credit/debit card company for approval, collecting the money from the customer's bank and taking a piece of the action every step along the way. If banks were to set up credit/debit card blockchains, the need for the middleman would vanish, as would a multi-trillion dollar industry that has exceeded $900 billion in revenues for the processors.
Any company that serves business users by providing background checks, employment histories and even credit checks to Human Resources departments could feel the impact of blockchain technology. The information pertinent to HR could be stored in blockchains, accessible at any time at no cost to the companies needing the information.
Not the lawyers themselves, but the companies that serve them. For example, instead of subscribing to a database service like Lexis/Nexis, specific categories of legal data could be available through access to blockchains that hold that data. Moreover, legal documents could be shared, altered, updated and revised within the blockchain, knocking another middleman (providers of collaboration software) out of the loop.
With the passage of the Healthcare Insurance Portability and Accountability Act of 1996, the storage of personal health information in digital format is now mandatory. And, whenever information is stored in a centralized database, whether in a provider's on premise infrastructure or in the cloud, there is risk of that information being compromised. Currently, the industry is looking at blockchain technology for this purpose.
Like so many things in technology, blockchain's promise is largely unrealized. But its potential would seem to be unlimited. Is it really positioned to become Web 3.0? Lots of really smart people think so. Six global banks recently announced an initiative to form a semi-standard cryptocurrency. However, before it realizes that status, there is lot of technology that needs to be developed, rules to be written, and, most importantly, 800-pound gorillas to be removed from the room.