Blockchain is the current new thing, making headlines as the technology underpinning cryptocurrencies such as Bitcoin. Lots of people know that Bitcoin as jumped in value over the past year from around $1,000 to a current price of about $11,200, (off its peak of around $12,000). But most people do not understand the technology that it based on.
The National Institute of Standards and Technology is producing a practical guide to blockchain to help businesses understand their potential uses beyond cryptocurrencies: What they do, how they work, and their advantages and disadvantages.
“Blockchain is a powerful new paradigm for business,” said Dylan Yaga, a NIST computer scientist one of the authors of NIST Interagency Report 8202, Blockchain Technology Overview. “People should use it—if it’s appropriate.”
The draft report, which has been released for public comment, is a high-level description rather than a technical guide. But it still runs to 59 pages and contains enough detail to help IT managers make informed decisions about whether blockchain is an appropriate tool for a job. “There is a high level of hype around the use of blockchains, yet the technology is not well understood,” the report says. “It is not magical; it will not solve all problems. As with all new technology, there is a tendency to want to apply it to every sector in every way imaginable.”
The report gives a basic description: “Blockchains are immutable digital ledger systems implemented in a distributed fashion (i.e., without a central repository) and usually without a central authority. They enable a community of users to record transactions in a ledger public to that community such that no transaction can be changed once published.”
The blockchain concept dates back to 1991 and the use of digital signatures for signing a chain of information to create an electronic ledgers. It began gaining wider attention in 2008 in Satoshi Nakamoto’s paper “Bitcoin: A Peer-to-Peer Electronic Cash System.” One of its attractions is that the blockchain allows users to be anonymous although the transactions are public.
Bitcoin was only the first of many blockchain applications, which include other cryptocurrencies as well as the Hyperledger Project, hosted by the Linux Foundation to create enterprise-grade, open-source distributed ledgers. MultiChain is an open source blockchain platform that lets anyone to set up, configure and deploy a private, semi-private or public blockchain.
But blockchain is the answer to every problem, NIST warns. “There is a tendency to overhype and overuse most nascent technology. Many projects will attempt to incorporate the technology, even if it is unnecessary.” The report spells out some of the limitations and misconceptions of blockchain technology:
• Control: Blockchains are created and controlled by someone. While they are not government run, they are not completely autonomous systems and have rules.
• Malicious users: There is no way to enforce a code of conduct and anonymous users cannot be policed.
• Trust: A great deal of trust is needed to work in a blockchain system; in the technology, in the developers, in the users and in the nodes.
• Resource usage: A distributed worldwide network can require significant resources to verify work done and download records.
• Credential storage: With no central authority, users must manage their own private keys. A lost key can mean lost assets.
• Identity: Typical blockchain implementations are not designed to serve as standalone identity management systems.
Comments on the draft report can be made through Feb. 23 to nistir8202-comments@nist.gov.