Also known as:
Digital Ledger Technology (DLT)
A blockchain is a shared database of records that uses data governance mechanisms to prevent tampering.
Think of a blockchain as a steadily growing spreadsheet of records – or ‘blocks’ – that creates a tamper-proof record where each block is linked to the previous block – or ‘chained’ – using cryptography. Each entry recorded is validated and reconciled by all participants in the network to ensure the integrity of the transaction.
Blockchains can be used in situations where multiple parties want to exchange data or information with each other, and don’t have the security of having trust in one another.
Depending on the type of blockchain being used to store data, parties can record, execute and check transactions between multiple participants of the blockchain.
Blockchain technology rose to prominence following the publication in November 2008 of a whitepaper about the cryptocurrency Bitcoin. The paper was authored by the creator of Bitcoin, a man known only by his pseudonym: Satoshi Nakamoto. The whitepaper proposed a set of cryptographic principles upon which today’s public blockchains are based.
There are four broad types of blockchain architecture:
- Blockchains can help to establish trust between various parties, reducing the amount of time it takes to process the exchange of information between two parties in a low-trust environment. This can reduce transaction time and cost and increase efficiency.
- With the help of carefully architected blockchains, participants can identify and map out the flow of information and transactions from one point to the other. As such, blockchains can help to increase the transparency and traceability of transactions. Traceability and transparency are important when a transaction moves across multiple parties to reach its final destination. For example, US retail company Walmart is now tracking spinach and lettuce sold in its shops, from the farm to the store, through a blockchain in the US. This enables multiple parties across the supply chain, which don't share the same IT systems, to securely share data related to the food supply by entering it on the blockchain.
- In comparison to traditional databases, blockchains can have higher data integrity as each transaction is checked, recorded and held by multiple parties.
- Blockchain is a relatively new technology and even though research and trials are well underway, there is still the potential of the solution being misunderstood to fit problems that may be solved by alternative but more mature technology, such as a centralised database.
- Even though blockchain is often claimed as a way to create a secure ‘trust-less’ environment, from a practical perspective, any system connected to or built on top of a blockchain would also still need to be appropriately secured.
- The governance structure (participants, rules, permissions) of blockchains can sometimes be quite complex and difficult to understand and implement correctly.
- The lack of standardisation across various blockchains poses a risk with regards to the ability of a blockchain-based solution to integrate with other systems, or with future systems.
Blockchain is being trialled, used or discussed in various areas and sectors of the economy. These include:
- Finance (For example: the London Stock Exchange is trialling tokenisation of stocks)
- Cryptocurrencies (example: alternative open source virtual currencies such as Bitcoin, which people can use to make payments)
- Digital Identity (example: creating online identity documents for people who may not have one)
- Public services (example: the Swedish land registry is trialling land titles being moved onto the blockchain)
- Reserve bank backed digital currencies (such as an eAUD)
- Energy markets
- Online Gaming (example: for trading unique avatars on collectibles via blockchains)
- Supply chain and logistics
- Charities and not-for-profits (example: Australia recently got its first blockchain-based charity registered by the Australian Charities and Not-for-Profit Commission)
In 2018, Data61 and the Commonwealth Bank conducted a ‘Smart Money’ trial by participants of the National Disability Insurance Scheme. The trial involved providing NDIS participants with ‘programmable money’ that can be spent only when certain conditions are met. The trial involved the creation of blockchain tokens that could only be redeemed for payment in Australian dollars by participating organisations. The tokens or ‘smart money’ could only be spent once certain conditions were met and based on the circumstances of the trial participant – these could be unique to each person.
NSW Land titles on the blockchain
In October 2018, Land and Registry Services (LRS) announced a partnership with ChromaWay to experiment with blockchain technology in order to move specific kinds of property transactions onto the blockchain to prevent and reduce fraud.
Australian Stock Exchange (ASX) to replace its electronic clearing system with blockchain-based solution
In 2016, the Australian Stock Exchange announced that it would replace its electronic clearing system (CHESS) with a blockchain-based solution that would provide greater efficiency, transparency and data integrity for the ASX partners. This work is ongoing.
Estonia’s health records on the blockchain
Estonia stores the medical history of its citizens on the KSI blockchain. This provides a record for medical professionals to access files securely; citizens can log into the system and view their personal information.
Links and further reading
Data61: What does the future hold for blockchain in Australia? (2019)
Blockchain technology (2018)
The truth about blockchains (2017)