This article is part of an ongoing series concerning blockchain in healthcare. The following is excerpted from our e-book, “The Healthcare Professional’s Guide to Blockchain.” Each week, we’ll feature a new section of the book, but you don’t have to wait. Download the e-book for free today!
Without a doubt, blockchain technology awareness hit critical mass last year. Throughout 2017, both startups and established companies alike trotted out products poised to harness this foundational technology.
In 2017, it was also impossible to avoid the hype of cryptocurrencies. Bitcoin, the digital currency first launched nine-years ago as a real-world proof-of-concept showcasing blockchain technology, reached dizzying valuations pushed by a tidal wave of speculative investors.
But, is Bitcoin overvalued? Is it an obvious example of market hype, a bubble ready to burst? Is Bitcoin a fad, like the Pet Rock, or the start of a new kind of frictionless digital currency that will grow profoundly in influence over the next decade?
Those questions, we cannot answer, and, are not the point of this article. However, the underlying blockchain technology that enables Bitcoin is so compelling that we feel the innovation will have a fundamentally disruptive effect on information technology over the next couple of decades. Just as the Internet spurred a foundational change to our entire information and communication infrastructure, we believe blockchain has the potential to provide a similar transformative change for data access, sharing, and security.
Understanding Blockchain Technology
For all the hype surrounding this technology, the underlying concepts of blockchain can be devilishly difficult to understand.
So let’s first define blockchain at its most basic level: a blockchain is a secure, encrypted distributed ledger system that allows multiple participants to read and add data to the ledger.
To further break it down, you can think of a “distributed ledger” simply as a database file that is shared by multiple parties, with each party keeping an identical copy of that database file.
Bitcoin, the most famous example of blockchain technology, uses encryption and an innovative consensus model of ledger management to keep data secure without the need for a central authority.
In the case of the Bitcoin blockchain, we find the following characteristics:
- The blockchain itself is public and distributed
- No central authority controls transactions
- Data, in the form of blocks, can only be added
- Data, once added to the blockchain, is immutable
How We Got Here:
Blockchain technology can be traced back to 2008 when a person named Satoshi Nakamoto first published a paper describing the cryptocurrency Bitcoin and its underlying blockchain platform.
While various digital currency schemes had been implemented in the past, each of them had a fatal flaw. The problem? Most digital currencies still relied on a single clearinghouse to manage currency transactions, centralizing authority. Digital currency models that attempted to circumvent the central banking model suffered from a problem called “double-spend”, the possibility that digital cash would be spent multiple times before a transaction could be successfully verified.
Nakamoto solved both of these problems by adopting a decentralized management model that incorporated a clever method of linking encrypted data.
How Bitcoin Works
It’s helpful to understand how Bitcoin operates as it represents a successful and working example of blockchain technology. Bitcoin was the first demonstration of blockchain and still its most well-known. So let’s dive in.
When it comes down to the basics, Bitcoin is a blockchain system like any other – a secure, encrypted distributed ledger system that allows multiple participants to read and append data to the ledger.
In Bitcoin’s case, the distributed part is a peer-to-peer network consisting of 11,000+ nodes operating across the globe, each with Bitcoin’s node software and a copy of the Bitcoin blockchain file. Anyone that is willing can join and support the Bitcoin node network by installing the appropriate software.
Bitcoins are bought and sold via several different marketplace websites and apps. When a transaction occurs, it is held in a queue for verification and recordkeeping. This is where blocks come in.
A block is a set of bundled transaction data. The blockchain grows when new blocks of data are packaged up and added to the end of the chain.
Now, there is quite a bit of technological magic that goes into making sure these transactions are valid and properly recorded. It all starts by using a security system involving cryptographic hashes to link blocks together.
What is a Hash?
The term “hash” can have a wide variety of definitions within computer science, but we’ll focus on what it means for blockchain. A hash is a way of taking data and transforming that data into a cryptographically encoded output of fixed length. The “hashed” output of the input data serves as a type of digital signature for the original data.
Hashes include some critical properties:
- A hash is a unique representation of the inputted data. Hashing identical input data will produce identical hash output, but changing just one character of the input data would produce a completely different output hash.
- A hash is cryptographically transformed in a way that makes it impossible to decode the input data. (It’s essentially a one-way encryption.)
By creating a hash of the input data, you are creating an easy-to-verify signature of the input data. If I send you a file of data plus the hash of that data, you could use the hash to determine if the data you received was original or altered. Any alteration of that data would invalid the hash. The hash is easy to encode and verify, but impossible to decode.
Blocks added to the blockchain consists of Bitcoin transaction data, the hash of the transaction data, plus the hash of the previous block in the chain. (It also includes something called the “proof-of-work” and some other items – more on that later.)
As the blockchain grows, the block structure itself provides the mechanism to detect any fraudulent changes to the blockchain’s data. If a nefarious actor attempted to edit a block of transactions, the edited blockchain is instantly invalidated by a cascade of mismatched
Once a block is accepted and added to the blockchain, it is virtually impossible for preceding blocks to be altered.
Remember, when we mentioned that the Bitcoin blockchain is not centralized? Instead, there are 11,000+ bitcoin nodes, each operating independently, but continuously communicating with the each other. When a new block is created and submitted for addition to the blockchain, each node works to add that node to the blockchain. Before that change is committed, 50%+ of the nodes must be in consensus that the addition is proper. Should anyone get the idea that they could inject a nefarious change in the blockchain, they would need to take control of over 5,500 nodes for this hack to be successful. In practice, this is a near impossibility.
So, how are blocks added?
In the previous section, we made it seem easy for a block of data to be added to the blockchain, In reality, it’s an energy and time-intensive endeavor. Luckily, it relies heavily on automation in a process called Bitcoin mining.
The term “mining” is a bit of a misnomer. Bitcoin mining is really the act of building a new block by compiling and verifying pending Bitcoin transactions. This is a rather simple matter of gathering and hashing data. However, to prevent spurious block building, Bitcoin has a throttling mechanism that slows down the process. Miners are required to complete a type of cryptographic puzzle called a “proof-of-work” before they can submit their newly created block. The proof-of-work is purposely difficult to compute, but easy to verify.
Think of completing the “proof-of-work” as trying to figure out the combination to a complicated digital padlock by trying combinations one at a time. It may be difficult and time-consuming to crack the combination, but once the combination has been guessed, it is easy to share the solution for others to confirm.
Each miner is competing to be the first to compile and verify a list of pending transactions and complete the cryptographic puzzle (“proof-of-work”). Once a miner has successfully assembled a valid block with a valid proof-of-work, the block can be added to the chain and communicated to other nodes. Because nodes communicate frequently, the update is transmitted across the network. As other nodes verify the block, a consensus is reached. If over 50% of the nodes agree with the update, the update is accepted across the system.
As an incentive, the miner of the accepted block is rewarded with newly minted Bitcoins. This reward is what helps incentivize Bitcoin transactions and keeps the whole Bitcoin blockchain running smoothly.
As blocks are added to the chain, it becomes increasingly unlikely that a change or edit could be made earlier in the chain as the cost of computing blocks (with their cryptographic puzzles) becomes prohibitive. Thus, the blockchain remains secure, public, and free from central authority. Because transactions don’t rely on a trusted source, and anticipates the participation of unethical parties, it is called a “trustless” system.
That’s a very simplified explanation about how the Bitcoin blockchain works. Keep in mind that the Bitcoin blockchain is just one of hundreds of different cryptocurrency blockchains. On top of that, there are dozens of available blockchain frameworks, each with different configurations, that developers can use to build their own public or private blockchain networks.
While cryptocurrencies operate public, trustless blockchains, all blockchains don’t have to be public. Companies or organizations can set up private, permissioned blockchains that operate with only trusted nodes, significantly reducing the need for large node networks or artificial transactional roadblocks (like proof-of-work requirements).
And, of course, instead of storing cryptocurrency transactions, you can store any type of data – IDs, certificates, records, transactions, datasets, clinical research, medical records, etc. Additionally, many blockchains allow developers to deploy smart contract and decentralized applications that run on the blockchain via specialized scripting languages.
Join us next week for Part II of our e-book. Of course, you don’t have to wait! The complete e-book is available now, for free. Get up to speed on blockchain technology for healthcare in 15 minutes or less.