When and if to use blockchain
Cryptocurrencies and the underlying blockchain technology that enables them are now a common topic of conversation. Much of the attention stems either from the giddy heights of value attained lately by the most well-known of these currencies, Bitcoin, or from the novelty of blockchain itself, which has been described as the most disruptive technology since the internet. Blockchain’s proponents believe it lets individuals perform transactions safely without the costs or security risks that accompany the intermediaries that are required in conventional transactions.
The NIST report’s authors hope it will be useful to businesses that want to make clear-eyed decisions about whether blockchain would be an asset to their products.
“We want to help people understand how blockchains work so that they can appropriately and usefully apply them to technology problems,” said
Dylan Yaga, a NIST computer scientist who is one of the report’s authors. “It’s an introduction to the things you should understand and think about if you want to use blockchain.”
The NIST document, whose full title is Draft NIST Interagency Report (NISTIR) 8202: Blockchain Technology Overview(link is external), introduces the concept of blockchain, discusses its use in electronic currency, and shows its broader applications.
A blockchain is essentially a decentralized ledger that maintains transaction records on many computers simultaneously. Once a group, or block, of records is entered into the ledger, the block’s information is connected mathematically to other blocks, forming a chain of records. Because of this mathematical relationship, the information in a particular block cannot be altered without changing all subsequent blocks in the chain and creating a discrepancy that other record-keepers in the network would immediately notice. In this way, blockchain technology produces a dependable ledger without requiring record-keepers to know or trust one another, which eliminates the dangers that come with data being kept in a central location by a single owner.
The blockchain idea has attracted enough supporters that there are now several hundred digital currencies on the market(link is external), and the companies that are investigating ways to employ blockchain number many more. Because the market is growing so rapidly, several stakeholders, customers and agencies asked NIST to create a straightforward description of blockchain so that newcomers to the marketplace could enter better informed about the technology.
“Blockchain is a powerful new paradigm for business,” Yaga said. “People should use it—if it’s appropriate.” The question is when it is appropriate. As with any new tool, there can be a temptation to employ it purely for its novelty value. The report outlines some possible use cases, including banking, supply chain management and keeping track of insurance transactions. The report, Yaga said, was created partly to help IT managers make informed decisions about whether blockchain is the right tool for a given task.
To that end, Yaga said, the document began as a sort of FAQ addressing falsehoods the authors had come across—such as the idea that there was no need for trust in the system. (“You do need trust,” he said, “just not a trusted third party, like a bank.”) It expanded to discuss the technical tools common to most blockchain-based systems and also explored related issues, such as the high demands blockchain systems place on network resources.
This document is intended to help readers to understand the technologies which comprise blockchain systems and to understand how blockchains can be appropriately and usefully applied to technology problems.
- Section 1 provides an introduction to the topic of blockchain technology.
- Section 2 defines the high-level c
omponents of a blockchain system architecture, including hashes, transactions, ledgers, blocks, and blockchains.
- Section 3 discusses how a blockchain is expanded through the addition of new blocks representing sets of transactions.
- Section 4 examines the need for consensus models to resolve conflicts among blockchain mining nodes.
- Section 5 introduces the concept of forking.
- Section 6 defines and discusses smart contracts.
- Section 7 looks at blockchain permission models, discusses their application considerations, and provides use case examples for each model.
- Section 8 provides several examples of blockchain platforms in use today to indicate the variations from one platform to another.
- Section 9 highlights some of the limitations of blockchain technology.
- Section 10 gives a short conclusion for the document.
- Appendix A contains a glossary for selected terms defined in the document.
- Appendix B provides a list of acronyms and abbreviations used in the document.
- Appendix C defines the references used throughout the document.
If you or your business have legal questions or concerns regarding computer law, privacy, or cybersecurity law matters, contact attorney Jeffrey A. Franklin at Prince Law Offices.