HOW BLOCKCHAIN WORKS
Contrary to popular belief, blockchain technology can be used for any number of purposes. It’s simply a distributed, tamperproof digital ledger on which transactions can be executed, with cryptography, ensuring the integrity and security of the information exchanged. How this works, is that every computer in the network has a copy of that ledger that’s updated each time data is added. So, there’s no single point of failure. Because verification is executed by means of consensus, there’s no need for a central authority, rather the computers in the network as a whole will determine if new information should be added to the ledger.
Thus, Blockchain guarantees both authenticity and ownership without requiring powerful central servers. The distributed nature of the technology means that both authenticity and ownership are securely stored. To manipulate or destroy information already in the blockchain, you’d have to do so across more than 50% of the computers in the network. That’s what’s known as a “hard fork”, where two versions of the blockchain are created and only one version is followed by the majority.
WHEN SOMETHING GOES WRONG
“Blockchain is a system that incentivizes people to do the right thing, so it’s very robust.” says Toby Hoenisch, CEO of TenX. However, he says things can go wrong at the application layer.
For example, in 2016, a project called “The DAO “(Decentralized Autonomous Organization) was created as a sort of decentralized venture capital firm that used smart contracts to allow people to vote on pitches by startups from the community.
Anyone with DAO tokens could vote on the project, and would receive rewards if the project turned in profits. In essence, the “wisdom of the crowd” would fund the best projects, which should in theory be the most likely to return a profit. However, a hacker found a loophole in the application and made off with about US$50 million worth of Ether.
Thankfully the Ethereum community was able to place the funds into an account subject to a 28-day holding period, so the hacker couldn’t make off with the money. Eventually, the community voted to hard fork the network to move the DAO tokens to a recovery address where they could be exchanged back to Ether by their original owners.
PICTURES (ILLUSTRATION) PWC NETWORK (CHAIN)123RF
EVERYTHING IS A TOKEN
- Information in blockchain is stored as digital tokens that can represent anything of value. Here are some of the common tokens you find used and what they represent.
- Currency tokens: Bitcoin and Ether are obvious examples of these. Essentially, this sort of token has value in its own right, and can be used for payment in exchange for other items of value.
- Utility tokens: These basically identify you as having the right to use a certain good or service. For example, tokens for energy usage would represent how much energy you can draw for a given month.
- Commodity tokens: These give you the right to an underlying commodity, such as rewards for games or gifts from marketing campaigns.
- Security tokens: Just as with the stock market, these represent investment interest in a company, including entitlement to profits.
- Identity tokens: These types of tokens basically act as proof of authenticity, and can be used to validate the authenticity of an item or to grant access to a set of records.
ALREADY ON THE BLOCK
NOW THAT YOU HAVE A BETTER UNDERSTANDING OF WHAT BLOCKCHAIN TECHNOLOGY IS, HERE ARE SOME EXAMPLES OF WHERE AND HOW IT’S BEEN USED.
TICKETS FOR THE 2018 FIFA WORLD CUP
When you’re selling tickets for what’s arguably the world’s largest sporting event, you can be sure that scalpers with counterfeit options will be ready to pounce. Even legitimate ticket resale platforms can be guilty of marking up prices exorbitantly.
Blockchain allows the rights holder (in this case FIFA) to set indisputable rules that determine ticket ownership, including defining the pricing levels on resale later on. Blocside Sports and Aventus showcased just that, taking inventory of 10,000 tickets that they sold across the US, UK and Europe.
UEFA has also similarly implemented blockchain mobile ticketing. At the 2018 UEFA Super Cup final, all spectators used blockchain-powered mobile tickets, downloaded onto their device by an Android or iOS application.
LUXURY GUARANTEES AUTHENTICITY
What does Vacheron Constantin and LVMH (Louis Vuitton Moet Hennessy) have in common other than high net-worth clients? Both luxury brands have recently turned to blockchain-powered solutions to guarantee the authenticity of their products.
Vacheron Constantin will begin using blockchain immediately with timepieces from its Les Collectionneurs program, so each time piece will come with a paper certificate of authenticity and an incorruptible digital certificate.
Similarly, LVMH has just announced a partnership with Microsoft and blockchain software company ConsenSys to create the Aura platform, a blockchain system for authenticating its luxury goods. Using Aura, you can trace the lifecycle of LVMH products, including the design, raw materials, manufacturing and distribution, giving you much more than just a means of authentication.
BUNDLING UP HEALTHCARE
Confidentiality concerns means that generally isn’t a single central record of your health history. You the patient have to be responsible for creating one for each medical institution you visit. Other than being a major hassle, that also opens your health care up to mistakes due to human error.
Government health databases help to alleviate that in some countries, but then access is generally limited to public hospitals. Security can also be an issue, as seen in the 2017 WannaCry attacks which took down the United Kingdom’s National Health Service, and more recently, the hacks into Singapore’s national database SingHealth resulted in the theft of 1.5million patient records.
Singapore-based blockchain and healthcare analytics startup MediLOT Technologies is looking to change that by using a system that uses a dual blockchain with a layered architecture that’s able to incorporate Artificial Intelligence and data analytics. The aim is to allow for equitable data sharing that’s patient centric and safeguards privacy - a single data record that’s shared securely across all your medical institutions.
RETHINKING MARKETING CAMPAIGNS
The tokenized nature of blockchain technology lends itself well to gamification, which allows savvy marketers to run marketing campaigns with a difference. For example, Heineken partnered with Los Angeles Football Club (LAFC) to run a campaign where fans could collect prizes in the form of vAtoms (tokens in the selected blockchain) that they could redeem for tickets to a game or merchandise like a LAFC hat.
Heineken also offered a vAtom empty pint glass that filled up by 25% for every share. Four shares later, and the pint glass could be redeemed for a real pint at participating retailers. Gwyn Humphreys, Business Director of Because, says Heineken chose blockchain technology because it allowed them to be sure that only customers engaging in the activity could make redemptions, and because they could easily control the total number of redemptions.
The ability to track results in real time was also one of the key reasons why both brands choose to use the technology, as they could see key times when participants made redemptions.
MORE POWER OVER YOUR POWER
In a world where more and more countries are moving to reusable energy sources, there’s a real need for efficient storage and distribution on the grid. As such, blockchain companies like LO3 and Electron are working to digitize the energy market. Their aim is to reduce the wastage in energy by creating localized energy marketplaces where consumers like you and I can sell our excess energy to each other, with blockchain as the underlying platform to track all these transactions.
Acciona Energy in Spain on the other hand, has used blockchain to trace the renewable nature of its generated energy, allowing its clients to verify - in real-time and from any part of the world- that the energy being supplied is truly clean.
FIVE COMMON MYTHS ABOUT BLOCKCHAIN
BLOCKCHAIN IS BITCOIN
Bitcoin is just one application of blockchain, not the other way around.
BLOCKCHAIN IS BETTER THAN TRADITIONAL DATABASES
Blockchain’s advantages come with their own technical trade-offs, so traditional databases can still perform better.
However, it is particularly valuable in low-trust environments.
BLOCKCHAIN IS TAMPER-PROOF
Blockchain’s structure is append only, so you can’t remove data.
If you can take over more than 50% of the network’s computing power though, you could technically rewrite all previous transactions. But that’s highly impractical.
BLOCKCHAIN IS 100% SECURE
Blockchain uses immutable data structures, making it highly secure.
The overall security of the system is still dependent on adjacent applications, which can be compromised.
BLOCKCHAIN ONLY HOLDS THE TRUTH
Blockchain does verify all transactions and data contained with the chain, but it can’t assess if an external input is accurate.
By Marcus Wong Art Direction and digital imaging by Ashruddin Sani