Top 10 things you need to know about Blockchain

By Madhvi Mavadiya | 20 January 2016

A new UK government report has advised that blockchain should be used to run public services because this form of technology is a more secure way of managing data. As records will be kept on a digital ledger, private blockchains will only permit specific users and in turn, will be highly resistant to malicious tampering, according to the BBC.

Minister for the Cabinet Office and Paymaster General, Matthew Hancock MP and Minister of the State for Culture and The Digital Economy Ed Vaizey MP, authors of the “Distributed Ledger Technology: beyond block chain” report, highlighted that this may be the most exceptional form of innovation that we have seen recently. “As we have seen open data revolutionise the citizen’s relationship with the state, so may the visibility in these technologies reform our financial markets, supply chains, consumer and business-to-business services, and publicly-held registers.”

Alongside this, after Prime Minister David Cameron announced that he was behind the efforts of the UK Fintech 2020 manifesto released by Innovate Finance, the country is the best place to “unlock the full potential of this technology”, according to the report. Chief Scientific Adviser to the UK Government, Sir Mark Walport, explained how the data management systems that are currently used by the governments are large centralised systems with “a high cost single point of failure”.

Here is Sir Mark Walport’s explanation of blockchain summarised into 10 top facts:

1. The use of a ledger for commerce has been around for a long time and the only change made to this system has been computerisation. “Now, for the first time algorithms enable the collaborative creation of digital distributed ledgers with properties and capabilities that go far beyond traditional paper-based ledgers,” Walport explained.

2. A distributed ledger can be defined as an asset database and every user within the network is able to have an identical copy of this ledger, which can be shared across multiple sites, geographies and institutions. “The security and accuracy of the assets stored in the ledger are maintained cryptographically through the use of ‘keys’ and signatures to control who can do what within the shared ledger.”

3. Governments can benefit from this distributed ledger technology to manage their data more efficiently and securely. “Distributed ledgers are inherently harder to attack because instead of a single database, there are multiple shared copies of the same databased, so a cyber stack would have to attack all the copies simultaneously to be successful.”

4. Keyless Signature Infrastructure (KSI), the form of distributed ledger technology developed by Guardtime, is being used by the Estonian government at present so that citizens can verify their records on government databases.

5. This distributed ledger technology is called ‘blockchain’, as the algorithms enable transactions to be split into ‘blocks’ which are then added to a ‘chain’ of blocks with the use of a cryptographic signature.

6. In 2008, blockchain technology was used to create the peer-to-peer digital cash Bitcoin which is an online equivalent of cash.

7. In order to add a new block, a cryptographic puzzle must be solved. Anyone with access to the Internet and computing power to solve the puzzle is able to do this and add to the ledger and are referred to as a ‘Bitcoin miner’.

8. To ensure security and authenticity, bitcoins need to be stored in virtual wallets like cash, but are different to the physical currency as bitcoin is issued “in agreed amounts by the global ‘collaborative’ endeavour.”

9. However, as cryptography underpins the supply and tracking of the bitcoin currency and governments become suspicious of criminal transactions, digital currencies are untrusted as there is a missing ledger from the chain of how physical cash is transacted.

10. Walport concludes that this problem can be eradicated with proper education. “The key message is that, by fully understanding the technology, government and the private sector can choose the design that best fits a particular purpose, balancing security and central control with the convenience and the opportunity of sharing data between institutions and individuals.”