Blockchain: what is it and what does it mean for development?

What is it?

Blockchain is a digital ledger that provides a secure way of making and recording transactions, agreements and contracts – anything that needs to be recorded and verified as having taken place.

However, uniquely, rather than being kept in one place like the more traditional ledger book, the database is shared across a network of computers. This network can encompass just a handful of users, or hundreds and thousands of people. The ledger becomes a long list of transactions that have taken place since the beginning of the network, getting bigger over time.

How do you use it?

Blockchain runs on specialised computer software that operates behind the scenes, automatically distributing information to the database as new transactions are made. Most individual users will not see a blockchain performing and this instantaneous nature means there is little to no window of time for someone to alter a transaction before it is recorded on to the ledger. Blockchain software is an area of experimentation and in June, a market assessment estimated that $1bn would be invested in blockchain technology in 2016 alone.

How is it secure?

A blockchain database consists of blocks and transactions. Blocks contain batches of transactions that are “hashed” and encoded. Each block contains the hash of the block before it, which links the two and forms the chain. This process validates each block, all the way back to the original, and is integral to the database’s security.

When a transaction takes place, its details are encrypted and a unique multiple-character transaction number is generated. Instead of other users in the blockchain being able to see the exact details of the transaction, this number is recorded in the ledger as a placeholder. All the users of the network will be able to see that the transaction has taken place but only the parties involved in the transaction can access and view its details.

All this makes any fraudulent activity easier to spot. An external hacker would have to gain access to every computer that holds a copy of the blockchain database, and at the same time, in order to tamper with it.

What is it used for?

Blockchain technology has been around for a number of years and its most well-known use so far is Bitcoin, the virtual currency that came to prominence in 2008. The uses of blockchain are not limited to financial transactions, though, and enthusiasts are looking into other ways applications for the technology, especially for the types of transactions where there are often disputes or trust issues, such as with land rights.

What does it mean for development?

As an emerging technology, blockchain enthusiasts are hopeful it could be the next big development disruptor. In providing a transparent, instantaneous and indisputable record of transactions, its potential to remove corruption and provide transparency and accountability is one area of intrigue. But there are still many questions around how to apply the technology. Does blockchain really meet a need that is not already being served? And is there a market where it serves a purpose?

How could it be used in the sector?

Towards the end of last year, the Start Network announced a project to trial how blockchain technology can speed up the distribution of aid funding and trace how it is spent. The ultimate aim would be to track every pound in aid, from donor to recipient.

Blockchain could also be used for land tenure and property rights. Traditionally, governments keep records of who owns a certain piece of land or property, and the owner may or may not have a piece of paper to prove it. But government records can be lost or manipulated, or the government might have issued a deed to someone else for the same piece of land so two people could claim ownership for the same plot. The blockchain, however, could function as a neutral broker to determine who owns what; the chain could prove which parties are involved and what they agreed to as the original contract would have been verified by a blockchain database, and stored securely on the ledger.

Development Alternatives Incorporated (DAI) is also looking into how blockchain technology can be used in electronic medical records, which are becoming more common around the world. “There are so many people involved in the healthcare process for a single patient – hospitals, doctors, insurance companies and, in some cases, the government – so how do you make sure those records remain secure, encrypted, and that they’re not lost or corrupted?” says Ben Mann, global practice specialist at DAI. “Blockchain can act as an encryption process so that documents can be shared securely, and also ensure that documents are not altered.”

What are the drawbacks?

In the development space, there are concerns over whether the technology is appropriate. Blockchain is resource-intensive by its nature; distributing a common digital ledger across a network requires many servers, computers and people. “Would blockchain work in a country where the government frequently shuts down the internet, where there is civil unrest, or poor energy infrastructure and rolling brown outs? Probably not,” says Mann.

“We know that some governments struggle to equip their staff with basic IT equipment, let alone run expensive programmes on them. Any blockchain technology in this setting would need to be subsidised by development partners and donors … and that raises questions around sustainability.”

Should we be using blockchain?

In January 2016, the UK’s chief scientific adviser urged the government to adopt the technology, and companies such as Microsoft are developing their own blockchain services. But, like any nascent technology, there are still kinks to work out, such as those around cultural acceptance and uptake, building the right infrastructure, and making sure the right levels of regulation are in place.

“Bitcoin is the one solid, mostly-undisputed success story of blockchain, but there are lots of obstacles to come and we still don’t know if it can stand the test of time,” says Mann. “We’re still in the exploratory, Wild West phase of blockchain development but I am hopeful that it can serve a purpose.”

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