First popularised outside of computer science circles with the cryptocurrency bitcoin, blockchain technology is now grabbing the attention of just about everyone, from financial services and governments, to discussions around the dinner table.
Understandably, there's plenty of confusion – just what does blockchain mean for business? What will and won't it be used for, and will it live up to the hype?
Here we try to break it all down for you.
What is blockchain?
Perhaps the most well-known blockchain project is the cryptocurrency bitcoin, but it is worth separating the two: bitcoin is a currency that makes use of blockchain technology, whereas blockchain is the underlying infrastructure.
A blockchain is in essence a list of digital records – called blocks – with each of these secured by cryptography to create a ledger of these transactions. Once a record has been verified it enters the chain and cannot be amended.
For this reason its real-world applications tend to be in areas where visibility and trust are paramount: think banks, shipping companies, regulators and supply chains. Some real-world applications include Walmart tracing its food supply from "farm to fork", and the Royal Bank of Scotland automating mortgage delivery receipts to send to the Financial Conduct Authority.
Pretty much all of the big enterprise technology names are dabbling with blockchain to some degree, but among the leading players are IBM, Microsoft, Cisco, Fujitsu, Intel, NEC, NTT Data, Red Hat, and VMware – all of which are members of the Hyperledger Project, an umbrella project for open source blockchain led by the Linux Foundation.
How can blockchain be used by businesses?
The wide range of uses for blockchain is now "a world away from bitcoin," according to Lisa Moyle, head of financial services and payments at industry group techUK.
While the finance sector has been pushing the technology, there's now the potential for applications across plenty of different sectors. (See also: Blockchain is set to take the tech world by storm - here's why)
That could include new forms of clearing and settlement, as well as supply-chain finance. And Everledger, for example, uses blockchain to guarantee the provenance of diamonds.
"The challenge is to test these use cases against the current regulatory framework and understand real-world viability in terms of cost, suitability and efficiency," Moyle says.
Governments are exploring the potential for blockchain in running secure and cost-effective services. "Things like land registry, tax collection, or confirming the validity of government documents," Moyle says.
Indeed, chief executive for UK Research and Innovation (UKRI) Sir Mark Walport, recommended the National Health Service (NHS) use a form of blockchain technology for its databases and record-keeping.
"It has the potential to redefine the relationship between government and the citizen in terms of data sharing, transparency and trust," he said at the time.
A new system of record
As blockchain enables peer-to-peer transactions with a great deal of trust and transparency, the idea is it could prove useful for any industry where multiple parties require a common record – think payments, or insurance, or voting, where the internet of things and connected devices are playing a bigger role.
An example: IBM's blockchain VP Jerry Cuomo imagines a world where you're only liable for your car insurance when you're on the road and driving.
By distributing information through a blockchain, it would be possible for all parties to agree exactly when a car was on the road. If a car had automatic parking software, the record created by blockchain could determine when the driver was in control, and when it was the software – using the record to identify who was liable at that time.
According to a recent report from Deloitte (PDF), there are three key characteristics to blockchain that make it a desirable technology across industry. First, it's almost impossible to tinker with the blockchain without it being noticed, making fraud very difficult.
Blockchain can also make transactions irrevocable, increasing the accuracy of records as well as simplifying back-office processes.
And because it is digital, almost any document or asset can be expressed in code and then expressed in a ledger entry, Deloitte says, making the technology widely applicable.
Who is developing blockchain systems?
A number of initiatives have cropped up recently to help push blockchain into more mainstream usage. This typically means creating private networks for shared systems of records.
In September 2015, nine financial companies joined the R3 consortium to invest in blockchain in the finance sector: Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, JP Morgan, RBS, State Street, and UBS. Just two weeks later they were quickly joined by another 13 – turning the consortium into a who's who of big financial interest – with Morgan Stanley, Deutsche Bank, HSBC and Societe Generale just some of the members.
Meanwhile, some financial heavy hitters, like JP Morgan and Deutsche Borse Group, were joined with technology giants like Intel, Fujitsu, IBM and Hitachi in putting their collective muscle behind The Linux Foundation's Hyperledger project. (See also: Why banks are betting on the blockchain - not bitcoin - to transform the financial sector)
Hyperledger intends to advance the blockchain project by setting open standards collaboratively, so a network of businesses can agree on using one, decentralised public ledger.
IBM, meanwhile, has launched its own blockchain-as-a-service – available to developers on the cloud so businesses can begin experimenting with use-cases with a fully configured blockchain out-of-the-box. (See also: Blockchain needs Linux-style open community to succeed in the enterprise, says IBM CTO)
And that same Deloitte report highlights Ethereum – now available on the Microsoft Azure platform – which is a framework for supporting internet of things applications with transaction processing, itself trading a cryptocurrency called Ether that has been second only to bitcoin in terms of value.
IBM's Jerry Cuomo believes there are people out there who are fundamentally misunderstanding the best uses for the technology.
"We sometimes get confused with the technology – for example we can use blockchain to replace a distributed database," Cuomo says. "But that's a terrible use of blockchain."
"There are great databases out there; this is not one of those purposes. You wouldn't apply a blockchain design pattern to solve a database problem."
"Blockchain makes sense when you're bringing businesses together with this consensus," Cuomo says. "The technology is important, but without building out that business collaboration? It's kind of missing the point."
Both banks and vendors that are invested in blockchain have moved on from a wait-and-see approach to proof of concepts, active testing, and even full deployment, while at the same time enthusing about the possibilities.
While financial services and insurance industries see blockchain as a way to strengthen anti-fraud methods, the other, darker side of that is the amount of money laundering that is being conducted through cryptocurrencies like bitcoin.
The 2017 cryptocurrency spike where bitcoin hit an all-time high of nearly $20,000 per coin drew considerable public attention – especially when a dramatic plummet soon wiped out over $550 billion in a month.
And businesses are starting to raise serious amounts of capital through something called an initial coin offering (ICO) whereby a percentage of a new business is sold to early backers, typically in bitcoin, in return for ‘tokens'.
ICOs are totally unregulated at the moment but US regulators are taking ICOs seriously. The American Securities and Exchange Commission, for instance, has now raised the issue in the Senate.
While the volatility in crypto represents the unregulated side of blockchain, it's clear that big finance, pharma, supply chain and logistics businesses all see a future for the technology in driving efficiencies and transforming the way transactions are handled. Analyst house Gartner anticipates nearly $4 trillion in yearly IT spending for 2018, and this will be led by artificial intelligence, the internet of things, and blockchain.
So while blockchain is very much a nascent technology that is still finding its feet, it's also clear that it's making great strides – and businesses that leverage it successfully early are likely to reap the rewards.