The National Institute of Standards and Technology (NIST) hast published a draft report on blockchain. This report is an excellent summary and overview of the technology, its key characteristics and use cases.
“Blockchains are immutable digital ledger systems implemented in a distributed fashion (i.e., without a central repository) and usually without a central authority. At their most basic level, they enable a community of users to record transactions in a ledger that is public to that community, such that no transaction can be changed once published.”
This has the following implications on organizations:
“However, on a blockchain, it is much more difficult to change data or update the ‘database’ software. Organizations need to understand the extreme difficulty in changing anything that is already on the blockchain, and that changes to the blockchain software may cause forking of the blockchain. Another critical aspect of blockchain technology is how the participants agree that a transaction is valid. This is called “reaching consensus”, and there are many models for doing so, each with positives and negatives for a specific business case.”<
Indeed – this highlights a few foundational aspects – blockchain realizes high data integrity and immutability based on a certain level of transparency required to reach a consensus on the validity of transactions. The report outlines the most important consensus algorithms – each with its drawbacks and advantages.
- “In the proof of work model, a user gets the right to publish the next block by solving a computationally intensive puzzle.”
- “The proof of stake model is based on the idea that the more stake a user has in the system, the more likely it will want the system to succeed, and the less likely it will want to subvert it.”
- “In some blockchain systems there does exist some level of trust between mining nodes. In this case, there is no need for a complicated consensus mechanisms to determine which participant adds the next block to the chain.”
The report also explores the most important types of blockchains :
- If anyone can read and write to a blockchain, it is permissionless.
- If only particular users can read and write to it, it is permissioned.
The permissioned blockchains are similar to an intranet only visible to the nodes on this network while a permissionless blockchain mimics the characteristics of the Internet.
“The use of blockchain technology is not a silver bullet, and there are issues that must be considered such as how to deal with malicious users, how controls are applied, and the limitations of any blockchain implementation. That said, blockchain technology is an important concept that will be a basis for many new solutions.”
The technology is indeed no silver bullet but is has huge potential for all applications which require a shared agreement and a high level of security.
“Blockchain technologies have the power to disrupt many industries. To avoid missed opportunities and undesirable surprises, organizations should start investigating whether or not a blockchain can help them.”
NIST asks for comments and feedback until February 23, 2018.
FINthinkers 