Block Chains

Block Chains

A few weeks ago, Pavel Nabutovsky and I attended a talk on block chains. The Bitcoin currency is an infamous implementation of this technology; however, the underlying approach will likely be important for a range of financial and commercial applications. A block chain is a data structure comprised of a series of data that have been validated by a network of trusted peers. In other words, a bock chain is a distributed ledger of time stamped transactions. The data structure can contain financial transactions, but can also contain any data including executable code. This use of block chains allows for the implementation of 'smart' objects, such as executable contracts or self-routing shipments. Block chain implementations have several key attributes.

  • Consensus-based validation of data that yields a confirmed series of time stamped data blocks
  • Anonymous nodes and a 'permssionless' mode for creating or modifying data blocks
  • Ability to confer trust on certain nodes over time
  • Support for nodes to be intermittently connected or disconnected over time
  • A well-connected note can create a data block and confirm that it is valid
  • A well-connected node can determine whether a data block exists or is valid
  • Automated conflict resolution

These attributes enable a distributed mechanism for data validation that makes any attempt to alter the historical data blocks to be prohibitively difficult or expensive. This fundamental mechanism is used in cryptocurrencies like Bitcoin to record payments between parties. The journaled and trusted transactions are theoretically tamper-proof. The process for a transaction such as payer X sends Y currency to payee Z is to:

  1. Broadcast this transaction to all nodes;
  2. Nodes reach a consensus to validate the transaction;
  3. Nodes add the transaction to the local copy of the ledger; and,
  4. Broadcast the ledger additions to other nodes.

A significant concern for cryptocurrencies is the possible use in illegal or malevolent activities. Bitcoins can provide an anonymous means to pay for drugs or engage in human trafficking, for example. I anticipate that we will see some improved access for law enforcement and sovereign Treasuries in the next few years before there is widespread adoption of cryptocurrencies. Bitcoin and similar implementations might be no worse or no better than our current system of sovereign currencies. However, the broader use of block chains seems more interesting. Below are possible applications of block chains outside currency.

  • Smart Contracts - secure, self-enforcing, and self-executing agreements
  • Digital Rights Management - secure mechanism for determine whether a user can access specific digital content
  • Process Control - maintaining operational state to direct actions by a set of distributed devices
  • Distributed Database - maintaining data for federated data sources
  • Land ownership - distributed registry and land title escrow in the developing world
  • Logistics & Supply Chain Management - self-directing items for distribution of goods
  • Command, Control, Communications - maintaining battlefield state to direct operations by any networked asset

Some useful links on Block Chains