Blockchain Explained

Blockchain technology, published in 2008 and released in 2009, was first used as part of the BitCoin cryptocurrency protocol. It’s a clever application of cryptographic algorithms that allow for the creation of a shared database in which any user can read everything but no single user can control what is written to the database.

BlockchainThis is very different from what you have in a traditional database, where a single process controls all reads and writes and any access by other users is controlled by that single process.

This disintermediation of a single controlling user isn’t free – the price paid is in terms of confidentiality because all users can see all transactions that take place. So if we say that blockchains provide a tradeoff between disintermediation and privacy, we’re not bending the truth too much.

The disintermediation that they provide makes blockchains appealing for IoT use. The future world of IoT might be lots of autonomous or semi-autonomous devices, and having a way for these devices to accomplish things without needing to go through a central authority of some sort might be very useful. The disintermediation that blockchains can provide might be just the thing to solve that problem. There may simply be too many IoT devices to practically do any form of central management of what they do, so blockchains might be a good way to keep track of the actions of the devices instead. So if I had to pick a case where blockchains will prove to be a very, very useful idea, the IoT would be what I’d bet on.

Although a lot of the early ideas for applying blockchain technology came from the financial industry (FI), it’s not clear how well that will work in the future. The lack of privacy is a definite drawback in the FI. There are approaches that are being considered to work around that problem, but today, the lack of confidentiality is proving to be a significant obstacle in the adoption of blockchain technology in the FI. It’s not an issue that can be solved with technology. The FI is heavily regulated, and it’s not clear if the decreased confidentiality that blockchains can cause is acceptable to either regulators or to other banks who might share the same blockchain (banks can be very competitive with each other). While researchers are working on ways to work around these issues, it’s not clear that what they’ll eventually come up with will be better than a centrally managed database.

Similarly, the adoption of blockchain technology in enterprise computing may be constrained by the confidentiality issue. Unlike blockchains turning out to not be as useful as we first thought in the FI, they will probably turn out to be more useful in enterprise computing.  We just don’t know how they’ll end up being useful in the future. CIOs should keep an open mind to possible projects that involve clever uses of blockchain technology, but also realize that the technology is still very new and unproven, so its use can also involve lots of risk.

It is important to keep in mind that in no way does blockchain technology replace traditional data-centric security (DCS). In fact, I would actually suggest that the two approaches are perfectly complementary instead of being alternatives. The three big goals of information security are confidentiality, integrity, and availability. DCS is a good approach to one of these (confidentiality) while blockchain technology can address the other two (integrity and availability).

At the heart of traditional DCS is replacing sensitive information by a valueless surrogate that is obtained through either encryption or tokenization, providing confidentiality for the sensitive information. It is not clear that blockchain technology can provide the confidentiality that businesses need, but it can provide the integrity and availability.

Coming to HPE Protect in September? Attend HPE Distinguished Technologist, Terence Spies’ session on blockchain:

Block Chain Mechanics
Session ID: B10273
Bitcoin and blockchain architectures promise a new, disruptive applications in the financial industry and beyond. While there is no shortage of breathless claims about blockchain, making strategic decisions about its impact requires understanding what it can and cannot do at a technical level. Hear the nuts and bolts of these systems and separate fact from hype.

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