By: George L. Howarah

You may have heard the term “blockchain” associated with cryptocurrencies. However, many people do not realize that blockchain has far reaching implications on a wide variety of businesses and industries. In this article, we discuss how blockchain works and potential applications for blockchain.

I. How Blockchain Works

  • A. Overview
  • Blockchain is a technology that allows data to be securely transferred using a decentralized and digital ledger that tracks and records a growing list of entries, called blocks. The list of entries are linked using cryptography. Thus, the ledger is not stored in a central entity (e.g., server); rather, it is distributed and stored via a network of private computers (“nodes”).
  • B. Blockchain Types
  • The main blockchain types are public and private. Public blockchains act as an open network and allow anyone to participate in the network. The participants can add to the blockchain, but cannot modify existing blocks. Once the blockchain is updated, the digital ledger is shared and transparently run by all participants.
  • Private blockchains act in a similar fashion as public blockchains. However, private blockchains are typically controlled by one or more entities. As such, private blockchains require an invitation or permission to join the network and must be validated by either a starter or a set of rules. As a result, each participant’s identity may be known by the entity controlling the private blockchain. Yet, unlike public blockchains, private blockchain participants may only be able to read certain data.
  • C. Blocks
  • A blockchain starts with an original block having a hash value, i.e. a numeric value of a fixed length. Every block thereafter has a hash pointer (i.e., a pointer to where data is stored in a previous block together with a cryptographic hash of the data) and data to be stored in the block (e.g., if cryptocurrency, data is currency ledger details). As such, a user may not alter data of a particular block without changing the hash value of all subsequent blocks in the chain. In doing so, each subsequent block will be invalidated, since their hash value is based on the previous block’s hash value. Thus, the longer the blockchain, the more reliable and secure it becomes, since altering a block requires modification to each subsequent block in the chain.
  • D. Blockchain Implementation
  • A blockchain implementation typically begins with a user submitting a transaction request. A block representing the transaction is created and broadcasted to the appropriate nodes in the network (e.g., in a public block chain, the broadcast is to all nodes in the network). The nodes then validate the block and the transaction to verify it has not been tampered with. The block is then added to the chain and the transaction becomes verified and executed.

II. Potential Applications

Blockchain technology can be utilized for a wide array of applications. For example, “smart contracts” – an agreement between parties written into lines of code and stored in a blockchain – permit users to exchange anything of value in a transparent, conflict-free manner while avoiding a middleman. Smart contracts can be used for the transfer of real estate, placing wagers, transferring goods, etc. Additionally, blockchain technology can be employed to secure an individual’s digital identity in an irrefutable, immutable, and secure manner.

This article appeared in the November 2018 issue of Global Patent Prosecution Newsletter.