Skip to main content


Blockchain Distilled: The Problems the Technology Solves

Hopefully by know you have heard the term “blockchain” multiple times and have come across multiple definitions. For example, Wikipedia defines it as – “a blockchain — originally, block chain — is a distributed database that maintains a continuously-growing list of records called blocks secured from tampering and revision. Each block contains a timestamp and a link to a previous block.” The Wall Street Journal defines it as, “A blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central authority.” To lots of people, it is known as the technology that underpins Bitcoin (digital currency). Investopedia defines it as, “A blockchain is a public ledger of all Bitcoin transactions that have ever been executed.” IBM defines it as, “Blockchain is a technology for a new generation of transactional applications that establishes trust, accountability, and transparency while streamlining business processes.”

Of course all of those definitions are correct i.e. blockchain is a technology; it is a temper-proof distributed transaction database; it is a data structure; and it underpins Bitcoin. But they fail to explain the buzz around it – what is the big deal? It is not that we didn’t have distributed databases before, or the encryption technology to encrypt the transactions, or the technology to establish the trust.

In order to understand the importance of blockchain, we need to look at the problem it solves. Whenever you have multiple parties involved in a transaction (e.g. when you are buying a home, or transferring asset from one bank to another), each party keeps track of the transaction (in their private ledger), and there is usually a middle person or party to settle the transaction (to make sure that the transactions information and the transactions order matches). As you can imagine, this is inefficient, expensive, insecure, and hard to audit. One obvious alternative is a centralized database – such a solution will be efficient, less expensive, and easy to audit, but it will be less secure. Therefore, people have been trying to solve the problem using a distributed database i.e. a system in which THE ledger (i.e. a common temper-proof ledger that contains all the transactions) is maintained on multiple nodes, and there is a consensus (among the nodes) on which nodes have correct copy of THE ledger (so that the system can recover even if some of the nodes are compromised). In 2008, Satoshi Nakamoto published a research paper that defined a design pattern to distribute and effectively temper proof THE ledger. Which became the basis for Bitcoin in 2009. This design pattern is commonly known as Blockchain.

Though this paper was targeted towards peer-to-peer payments from one party to another without going through a financial institution, it is equally applicable to any asset transaction between multiple parties without a settlement agent or clearing house, with some changes of course. For example, Satoshi Nakamoto’s design allowed any node to participate in the network but business-to-business networks are typically closed and require explicit permissions for participation, and in a closed/permissioned network one can use more efficient consensus algorithms like Practical Byzantine Fault Tolerance (PBFT) consensus protocol. This has led to multiple technical implementations/variations of Satoshi Nakamoto’s design (including one by Satoshi Nakamoto called Ethereum), which can be grouped under Permissionless vs Permissioned (IBM is a premier member of Linux Foundation’s Hyperledger Project, which is an open source, collaborative effort to create a blockchain for business), and to possible use cases beyond Finance. HHS recently had a contest to apply Blockchain to healthcare. They received 70 submissions and choose 15.



Source IBM

Hopefully by now you have a better understanding of Blockchain, and you are probably thinking about the potential use cases in your industry, and how that might affect your company, your business model, your business processes, your applications, and/or your data sources? Maybe Perficient can help. Through our industry expertise in Health Sciences, Financial Services, Consumer Markets, Automotive, Energy + Utilities, Telecommunications, and Manufacturing; our Organization Change Management practice; and our deep skills in Business Process Management, Information Management, and Integration, we have helped a number of customers, and we have a 90% Repeat Business Rate.

On-Demand Webinar

Many organizations are finding blockchain to be as confusing as it is promising. We cut through the hype and shared a practical way to get started, including how to determine where it fits within your organization. We covered the following in our on-demand webinar:

  • Why adopt the technology?
  • What makes a good use case?
  • What are some specific industry applications?
  • What are the best practices for getting started?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Naveen Sachdeva

More from this Author

Follow Us