Blockchain technology has been gaining a good deal of momentum in the technology world this year, with major vendors like Microsoft and IBM jumping on the blockchain bandwagon over its potential to revolutionize the way transactions are processed and managed.
Moody's Investors Service on July 21 released a report on the potential of blockchain, as the technology, originally created as a platform for the Bitcoin cryptocurrency, is now used in applications across a host of transaction-related areas. The Moody's report identifies 25 use cases for the technology.
The Moody’s report defines blockchain as a "chain of blocks of encrypted information." Moreover, each block can be thought of as a record of some transaction between two or more parties, the report said. A blockchain is a continuously growing list of data records that are organized into a series of blocks, each containing a batch of records or transactions.
Blockchain is a distributed database based on the Bitcoin protocol that maintains a continuously growing list of data records hardened against tampering and revision, even by its operators. The initial and most widely known application of blockchain technology is the public ledger of transactions for Bitcoin.
The Moody's report said a blockchain can be developed in a public, private or consortium context. For each use case an appropriate type should be selected.
According to the report, a public or permissionless blockchain is a fully decentralized platform that moves data storage and verification away from a single point of control, is open to everyone in the network and lets anonymous members, without trust established among each other, participate in the ledger.
A consortium or hybrid blockchain is a partially decentralized platform controlled by a group of pre-selected members that know each other, the report said. Validation is handled by trusted members and it is easier and cheaper compared with permissionless solutions. This model would be beneficial to a consortium of companies in a similar industry among whom trust is already ensured, said the report.
And a private or permissioned blockchain is where one centralized organization has write and validation permission to the ledger and authorizes read access. Under this framework, the central organization is empowered to change rules or revert transactions, as needed. As such, this would work well for company internal databases, the report said.
In addition, a key concept that blockchain users can apply is "smart contracts," the report said. These smart contracts exist among several parties and they automatically verify and enforce contractual clauses when predetermined conditions are triggered.
Although blockchain was created seven years ago, it is only now coming to the forefront and many companies are still in the early stages with the technology, deploying pilot projects and testing the efficacy of the ledger technology. The tire kicking phase will likely continue for some time.
"In the next year we expect more blockchain-related research and development, including proofs of concept, which will improve the understanding of potential benefits, approaches to overcoming known hurdles as well as identifying others, with increasing focus on developing large-scale applications,” Nick Caes, an analyst at Moody's Investors Service and author of the report, told eWEEK.