Blockchain works the same way, but it adds a layer of code called a block to the process. A block is just a sequence of unique letters and numbers protected by a highly secure form of encryption called public key. The use of public key encryption is important because it enables the owner of the information to control it without giving up personal information like names or Social Security numbers.
Every party in a blockchain network gets a “golden copy” of the document containing the embedded block. If the document changes, a new block is added and the revised file is synchronized throughout the network, a process that usually takes just seconds. As more changes are made, new blocks are added, forming a chain. That blockchain is both an audit trail and a version tracking system. Each block represents an earlier version of the document, enabling anyone to backtrack to see what was changed.
Blockchain also uses a distributed record-keeping system called a ledger that keeps track of changes to assets within the chain. Unlike a bank or financial accounting system, the ledger isn’t centralized, but is distributed to all the computers in the chain. As long as all documents have the same blockchain signature, everything is fine. However, if a version of a document is introduced that doesn’t match the blockchain signatures of the others (which are tracked in the ledger), it’s rejected. This ensures against fraud or manipulation.
ADVANTAGES OF BLOCKCHAIN
Blockchain has several unique advantages. One is anonymity. Parties who come to a blockchain can engage in trusted exchanges without revealing their identities, which cuts down on time. Another is blockchain’s distributed structure. Any two or more people can create a blockchain without going through the process of registering with a central authority. They can even create private blockchains that have different custom security definitions that limit what participants in the chain can do. In all cases, the parties to the blockchain decide what the rules are.
It’s important to note that blockchain doesn’t apply just to documents. It can be used with any kind of digital asset, such as images, video files and email backups. Blockchain is becoming particularly popular in intellectual property businesses. For example, professional photographers can use it to manage licensing rights to their creations and even to enable royalty payments.
WHY IT MATTERS
Here are some reasons records management professionals should become familiar with blockchain:
Cost savings – This is the most obvious benefit. Because blockchain transactions don’t require intermediaries, processes can be made more efficient and less expensive. There’s no need for auditors or legal professionals to validate the authenticity of information, so those costs come out of the process.
Efficiency – Fewer people means faster turnaround. Transactions that might take days waiting for multiple sign-offs can be concluded in seconds.
Security – The fewer participants there are in a transaction, less risk there is that something could go wrong. Handoff points are a prime vulnerability, and blockchain effectively eliminates them.
Flexibility – Any digital asset can use blockchain, including difficult-to-protect items like multimedia and email records.
Competitive advantage – Companies in the intellectual property space – such as law firms and stock photo agencies – can consider using blockchain to offer new services that benefit both buyers and content creators.
Blockchain is likely to get a boost from the recent move by a group of more than 70 of the world’s largest financial institutions to make their co-developed blockchain platform freely available under an open source license. The banks hope the move will unleash a gusher of innovation around new products and services based upon this technology.