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What is blockchain? And 5 other questions your boss needs answered ASAP

Blockchain technology can help many businesses improve digital transactions, but the technology remains a mystery to many professionals. Here's how it works and why it matters to the enterprise.

Blockchain has proven to be the larger value of cryptocurrencies, with implications for almost every industry. But confusion remains among many professionals over what it is and how it works.

Since blockchain is a relatively complex infrastructure technology, it can be difficult for those on the business side to grasp at first, according to Michela Menting, digital security research director at ABI Research. "Due to the many different applications that can be created, the deployment can become complex," Menting said. "As a decentralized peer-to-peer system, there are many moving parts, and as such, it can appear complicated to run."

Here are six questions that many C-suite members have about blockchain, and how to answer them, according to ABI Research:

1. What is blockchain?

Blockchain is a public ledger technology that uses digital signatures and cryptographic hashing to provide a record of secure transactions that cannot be altered.

SEE: Blockchain: The smart person's guide

"The advantage of blockchain is that it can provide an immutable ledger, offering both transparency and integrity, cemented securely using cryptography," Menting said. "As such, it can be useful for anti-fraud purposes, but also for continuity in business operations."

It can also be understood as an infrastructure on which many varied applications can be built in different domains, including finance and payments, supply chain, inventory management and asset tracking, identity management, and corporate governance, Menting said.

2. Blockchain and bitcoin are the same, right?

Not exactly. While all bitcoin is blockchain, not all blockchain is bitcoin, according to ABI Research. The easiest distinction is to understand that blockchain is the underlying technology that bitcoin uses. Bitcoin is the first—and most successful—commercial implementation of blockchain technology, though there are about 3,000 other cryptocurrencies on the market.

Bitcoin and other cryptocurrencies are often tied to the darknet and illegal activities, giving blockchain a bad name, Menting said. However, it's key for businesses to understand that Bitcoin and other cryptocurrencies are simply an application of blockchain, and many other can be created on that same infrastructure.

3. Why all the hype about blockchain?

Blockchain eliminates the need of centralization through a trusted third party, ABI Research noted. It allows parties to transact directly with one another in a secure manner, and is starting to transform established industries like the financial services sector.

It's important to recognize that blockchain is not a silver bullet, Menting said. "It is an infrastructure that can be leveraged to certain advantages, that can revolutionize certain industries and business models," Menting said. "But those will not necessarily apply to all cases—it is up to business leaders to study the technology and see if it is a right fit or not."

Before jumping into blockchain, business leaders must ask if it can provide value, streamline business operations, cut costs, or enable new business opportunities, Menting said.

SEE: Download: The executive's guide to implementing blockchain technology

4. What makes blockchain so secure?

Blockchain offers three security features, according to ABI Research: Immutability (the data cannot be changed after it's been created), transparency (all participants can see what's going on), and autonomy (self-governing). That means that no one person can change a record without the other parties knowing.

Blockchain is not a security solution in itself, Menting added, though an application can be created that provides security services.

5. So, does that make blockchain 100% secure?

Total security does not exist—blockchain technology remains susceptible to colluding attacks that trick the network into accepting unlawful transactions, ABI Research noted. However, these attacks would require a large number of parties to pull off, which, with bitcoin, would be nearly impossible to achieve.

6. So, how could blockchain change the world?

Moving forward, blockchain technology will continue to grow beyond digital payments, ABI Research predicted. For example, the technology is being used for smart contracts, which reside on a blockchain and are written in code, that can release funds, communicate information, record and embed data, and make purchases—all in a pre-programmed, autonomous manner. This could have a major impact on things like digital identities, voting, governance, asset tracking, engineering-related transactions, supply chain tracking, M2M transactions, and supplier identity and reputation.

The technology is currently being used by IBM to make the process of international banking more simple and cost effective. Other top uses for blockchain include stocks, shipping, and law, according to TechRepublic's Tom Merritt.

Businesses with a long supply chain and many parties involved in a product's lifecycle would benefit most from implementing blockchain, Menting said. For example, in producing a car, you could keep records of the good for the day it is created at a factory to the day it is no longer in use. These records could involve sale and resale, upgrades and maintenance, insurance and guarantees, and more. The same holds true for records management of people, Menting said, such as health records, civil records, or corporate records.

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Image: iStockphoto/suphakit73

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About Alison DeNisco Rayome

Alison DeNisco Rayome is a Staff Writer for TechRepublic. She covers CXO, cybersecurity, and the convergence of tech and the workplace.

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