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13
Connecticut CPA
g
November/December 2017
Blockchain Explained
"[Blockchain] is to bitcoin, what the
internet is to email. A big electron-
ic system, on top of which you can
build applications. Currency is just
one," explained technology reporter
Sally Davies.
A blockchain, when pared down to
basics, is a transaction list of records
that are leveraged and linked by cryp-
tography (read: mathematics) so as to
create inherently immutable records (a
chain) that are resistant to modifica-
tion. Think of this as a high-tech ledger
that cannot be scrubbed of its transac-
tional history and each successive re-
cord (block) on the ledger is tied back
to the previous entry, thus creating a
trusted chain of information.
Typically, a blockchain ledger is distrib-
uted openly (peer-to-peer). However,
there are cases where a reduced set
of distribution (a private ledger or per-
haps a hybrid) also suits certain busi-
ness, organization, or government op-
erations. With the decentralization and
replication of a ledger, no one person
or entity has control over the ledger
records, minimizing manipulation risk.
This decentralization, and the consen-
sus verification of each record that is
written, ensures accurate and verifi-
able blocks of information.
The technology can then be applied to
work for almost every type of transac-
tion involving something of value in-
cluding money, goods, and property.
The potential uses are almost limitless.
Possibilities include collecting taxes;
sending money through countries
where banking is difficult; and record-
ing titles, deeds, voting, audits, and
contracts (particularly smart contracts).
Blockchain could also assist in fraud
reduction and anti-money laundering
because every transaction would be
recorded and distributed on a public
ledger for anyone to see.
Applicability and Implementation
Many companies are investing millions
in the review and applicability of block-
chain. In fact, startups are beginning to
offer fintech-related services built on
blockchain, mainly due to the ability
to exchange and verify value in a real-
time, trusted, and secure way that is
close to free.
A custom-built blockchain that was
built with smart contracts in mind is
Ethereum. Due to the decentralized
nature of the blockchain, the Ethe-
reum platform expanded on the use
of tokens and can be leveraged to
execute smart contracts that can be
programmed to execute without down-
time, censorship, or third-party interfer-
ence. Developers leveraging this plat-
form can move value across owners,
store debts, or promises, and move
u
With the decentralization and
replication of a ledger, no one
person or entity has control
over the ledger records,
minimizing manipulation risk.
This decentralization, and the
consensus verification of each
record that is written, ensures
accurate and verifiable
blocks of information.
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