Yvonne-Anne Pignolet &Thomas Locher, ABB Corporate Research Baden-Dättwil, Switzerland
In a blockchain, transactions are executed once and immutably recorded in a fault-tolerant and tamperproof manner. These properties make a blockchain ideal for a wide range of uses. However, blockchain technology is in its infancy and has shortcomings that must not be overlooked.
A blockchain is a database that is replicated across multiple machines and used to maintain a continuously growing list of records. Records are compiled into so-called blocks, which contain a timestamp and a link to the previous block, thus forming a chain of blocks. The current high level of interest in blockchain technology is due to its desirable properties: Transactions are executed exactly once and an immutable record of all transactions is maintained in a fault-tolerant and tamperproof manner. Moreover, if the ledger is publicly available, anybody can verify the correctness of its records.
Traditionally, such features are powered through a trusted third party, which hosts multiple databases – for the sake of availability and fault tolerance – and vouches for the integrity of the stored data. The main disadvantage of relying on a third party is that trust is required in this party not to abuse its power and to provide its services faithfully. What is more, there is a risk that a malefactor could gain control over the third party and, for example, delete or modify records. In a blockchain, however, control is distributed, which makes the system much more resilient to malicious or inadvertent manipulation.
The original blockchain is the foundation of Bitcoin, the world’s first successful incarnation of a so-called virtual currency]. Bitcoin was proposed, in 2009, by “Satoshi Nakamoto” – a pseudonym. Satoshi’s real identity is unknown and the name may even refer to several people. The blockchain that underpins Bitcoin is described in Satoshi’s seminal work.
Unlike traditional currencies, virtual currencies are not controlled and regulated by banks and governments. Instead, control is decentralized and anybody in the world is free to join and dedicate (computational) resources to uphold the integrity of the system. Building a robust virtual currency is no small feat: If there is no centralized authority, such as a bank, who can prevent a malicious user from spending his or her virtual money multiple times? How can a seller be certain that a buyer has sufficient funds to purchase a chosen item? How can nonrepudiation of transactions be guaranteed? These questions hint at some of the crucial problems that any virtual currency must solve.
The Bitcoin blockchain addresses these issues by providing global consistency and serialization of transactions, ie, it defines for any two transactions which transaction occurred first. The additional key property of the Bitcoin blockchain is that the records are immutable, ie, recorded transactions cannot be altered or deleted.
Despite what some analysts claim, the blockchain concept is rather simple. In fact, the blockchain is of interest because it is simple yet offers several properties that are essential for many distributed applications. In short, the blockchain has the potential to simplify and automate processes for a wide range of use cases.
Potential future use cases
The main difference between using a third party and a blockchain lies in the claim that the blockchain removes the need to trust any particular party. In other words, trust is shifted from a specific party to a distributed system and its embedded protocols. As a consequence, one needs to trust that the majority of the parties involved in maintaining the ledger follow the protocols, ensuring that the ledger operations are carried out as intended and the remaining (malicious) entities cannot corrupt the system.
Since trust is a valuable and crucial commodity in any distributed system, it comes as no surprise that numerous use cases for blockchain technology, other than virtual currencies, have been proposed and are being investigated by ABB as well as many other companies. Most proposals can be classified into three categories, of increasing complexity:
- Registry service: Storing digital records in an immutable and auditable distributed ledger.
- Asset exchange: Asset creation and ownership transfer.
- Smart contract execution: Automate business processes through the execution of code.
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