In the past few months, Bitcoin and other cryptocurrencies have dominated headlines and astounded skeptics across the globe. Bitcoin’s dramatic rise during the past year shocked and captivated technology enthusiasts, investors, and regulators alike. Yet while the hype of bitcoin mania now shows signs of fading with its recent fall in price, the technology underpinning Bitcoin—blockchain—is likely here to stay. But what is Bitcoin, and why is blockchain technology so important?
Bitcoin has captured widespread attention as a currency and payments technology. But Bitcoin is just the first and most widely-known example of a new technological paradigm called distributed ledger technology, also known as “blockchain.”
In a blockchain, a series of sequential transactions are linked in chronological order to form a chain. Each new entry on the chain is called a block. Each block contains transactions digitally signed with public key cryptography. You can confirm that each new block is valid (i.e. authentic and free from errors) by checking it against the previous block. Blocks that don’t follow the pre-determined rules of the blockchain are automatically thrown out.
One key innovation of this technology is that the process to validate and add new blocks to the chain is decentralized instead of controlled by a central server. Each person that runs the blockchain software, called a “node,” can independently validate whether a new block follows the pre-determined rules. This means you don’t need to trust a third party to know whether a block on the chain is valid and free from errors. It also means that there is no central authority with the power to shut down the blockchain, in the same way that there is no “off” switch for the internet.
Blockchain has been called unhackable because to create new blocks, you need “miners” to find the solution to a logic puzzle using high-performance computer processors. The system is called “proof-of-work” because the only way to complete this puzzle is to run the processors and check solutions through trial-and-error. There is no way for a hacker to fake a solution to the puzzle and generate a fraudulent block unless he amasses more computer processing power than every other person on the network combined.
Another key benefit of blockchain is that it forms an auditable history of everything that happened on the blockchain. This allows you to see a detailed account of all the transactions that ever occurred. In this sense, every block on the chain is permanent and immutable.
These innovations make blockchain technology great for payment systems, and many realize it could be useful in other information systems that need to be free from hacks, errors, corruption, and unauthorized changes. A wide variety of ideas have been floated. For example, governments could use blockchain for electronic voting in political elections. Artists could use blockchain for digital rights management for their music and art. Information Governance (IG) is a field that might see tremendous benefits from blockchain technology because IG values data based on its authenticity, integrity, reliability, and auditability.
While no vendor has a turnkey blockchain solution yet, the contours of what an IG blockchain would look like are beginning to take shape. In the next article, we’ll explore the use case for blockchain in a records and information management setting and look at some of the key capabilities that an enterprise IG blockchain would need.
Disclaimer: The purpose of this post is to provide general education on Information Governance topics. The statements are informational only and do not constitute legal advice. If you have specific questions regarding the application of the law to your business activities, you should seek the advice of your legal counsel.