What is "Blockchain" Technology?
By Michael Vidikan
In 2008, a white paper described a new type peer to peer network that would allow two people to securely send each other a type of digital cash (called Bitcoin) without going through a financial institution. To date, all other ways to send people money require banks, credit card companies, or other financial institutions (and the currencies are minted by federal governments). Bitcoin was considered a revolutionary idea in that its coins would be minted from a computer program according to a strict set of rules and it would not have a central authority making decisions about printing money or controlling authority over transactions. The underlying technology that enabled the bitcoin to work is known as the blockchain.
To understand how the blockchain works, first imagine using a program like Excel. You open the file which is saved locally on your computer. You enter a transaction, save the file, and close out. What happens? The file is overwritten. Recording transactions on the blockchain is different.
Transactions are recorded in batches. And adding those transactions to the ledger doesn’t just overwrite the file. The system actually keeps an old copy of what ledger looked like before the added transactions and it creates a new copy of ledger and links them together. You can think of it like version control. When another batch of transactions is recorded, that creates yet another copy of the ledger. Each new copy of the ledger is a block of data and they are all chained together to the previous versions. That’s why it’s called a blockchain.
But the data isn’t just stored locally on your computer like an Excel file might be or saved on a company’s servers. Instead, the ledger is being stored and updated by thousands of different computers on the network – it’s decentralized and distributed. Like Google Docs, the ledger can be altered by many different parties at the same time – but unlike Google Docs, it’s not controlled by a single entity.
So you might ask, how do all of the ledgers get updated with the correct information if everyone is constantly adding to it? Well, the ledger can only be changed when there’s a consensus among the members of the group monitoring the ledger. They need to agree with what they’re seeing.
Before a single transaction is added to the ledger, it’s verified using cryptography (which is why bitcoin is called cryptocurrency). Independent computers on the network are solving complex math problems to verify the transactions before adding them to the global ledger. And then other computers on the network are verifying their transactions as well. Once enough members of the community approve all of these transactions, that block of data is closed and a new one begins. This decentralized and distributed structure is one of the central features of the blockchain and it eliminates the need for a central authority to approve transactions.
Also, the ledger’s openness to everyone on the network guards against fraudulent transactions. No single entity can alter or add to the blockchain without the consensus of the group. False entries are immediately spotted and discarded from the ledger.
The big takeaways about Blockchain technology:
- It’s Distributed/Decentralized – since it’s a peer to peer network, there’s no central authority controlling it. And this type of network is less vulnerable to the type of attacks used by computer hackers against central servers because taking down one computer on the network doesn’t take down the whole network because each system has a full copy of the ledger.
- It’s Immutable – once a block is recorded and added to the blockchain, it can’t be altered or changed. This has to do with the way the computers on the network solve cryptographic problems to verify transactions. Imagine racecars circling a track for every block to be solved. For a party to change a previously closed block, they’d have to circle the track 10 times before the other cars finish their 1 lap.
- It’s Trustless – The ledger is public and transparent. You don’t have to rely on a third party (like a bank or credit card company) to tell you if you’re approved to make a transaction. The money is there or it’s not. The data is there or it’s not. For two parties to transact on the blockchain they don’t have to rely on trust.
- It’s Consensus Driven – participating members on the network have to agree that the transactions are valid before the ledger is updated. This prevents individuals from adding fraudulent transactions to the ledger.
I mentioned there are lots of computers running the blockchain network that underlies bitcoin. The reason is the incentives built into the system to pay people to run the network. It takes a lot of computing power to do the cryptography to verify the transactions. When these math problems get solved, the solving computer gets paid. The system currently pays out about 12.5 bitcoins (at current bitcoin prices, that’s about $85k) every ten minutes.
Bitcoin attracted a lot of interest because it was digital currency, but there were some people who saw the potential for blockchain technology beyond just currency transactions.
In 2013, Vitalik Buterin – an 18 year old math wiz – introduced the concept for a new blockchain with a built-in programming language he called Ethereum. This was a major evolution because developing new applications on Bitcoin’s blockchain was unwieldly and difficult. His vision was to create a platform which would allow developers to easily create new applications and something he called “smart contracts” which are computer programs capable of facilitating, verifying, and enforcing contracts. Since they are hosted on the blockchain, the contracts are transparent and immutable – remember this means they can’t be altered by either party without alerting the network. They can be used to facilitate property transfer, record land titles, automate claims processing, issue payments, and foster new approaches to financial engineering.
Smart contracts are also used to establish a new sort of corporate structure on the blockchain that allows companies to issue their own cryptocurrencies in return for capital. These crowdfunding initiatives are called Initial Coin Offerings (or ICOs) and have raised more than $2 billion so far in 2017.
That brings us to Blockchain for Orthodontists
Imagine its 2007, when Apple launched its app store with 500 apps, and someone told you there would soon be an app universe with literally millions of apps that could do almost anything you could imagine. To prepare for this app revolution, you might write down ideas for what you’d like to be able to do with an app (messaging, payments, scheduling, image sharing, receipt scanning, etc.). You wouldn’t exactly need to know how or why an app works to come up with these ideas or even to get your practice ready to adopt these new apps.
You could look at the blockchain the same way. It’s already enabling a new generation of apps that will let consumers and companies to do some things they couldn’t do before (and/or do them better).
Here are some potential benefits and business opportunities for Orthodontists:
Authentication tools – As explainer above, transactions get recorded and the recordings are permanent. The fact that the record is permanent and immutable means the data can be proven to exist on the blockchain. This is a form of authentication because it provides proof that the record exists.
There are some blockchain apps that use this feature of the blockchain to give users a personal digital notary which stamps their documents, images, videos, and audio files with an unalterable timestamp key. The user is able to prove that they took the picture at that exact moment. Such a tool could be useful for timestamping patient records, healthcare data, and legal documents.
Disintermediation – The blockchain network enables direct peer to peer transactions. When two people send each other Bitcoin, the transaction does not go through a financial institution (unlike Venmo or Paypal which require you to link your bank accounts). Companies are developing apps on the blockchain that would allow assets to be transferred between peers without the need for third parties (from real estate titles to company ownership). Orthodontists often buy and sell office space and practices using third parties. Removing third parties from such transactions could significantly lower their overall transaction fees.
Smart Contracts – A novel innovation to the blockchain was the creation of self-executing digital agreements on the blockchain otherwise known as “smart contracts.” They can automate office processes and control when and how money, assets, and data are transferred. Think of them more like apps than legal agreements (though they can certainly be applied to legal contracts).
Here are some ways smart contracts can be used by Orthodontists:
- Programmable money. Potentially, you could give your assistants a blockchain based credit card that has built-in restrictions about exactly where and how they can use it. Since it’s based on computer code, it could even put limits on ordering a product if the price has gone up more than a certain percent in the last month or automatically increase the spending limit when an item is on sale.
- New rewards systems. Digital actions can be tied directly to a reward system. An employee’s 10,000 steps tracked by a fitbit or patient’s proper use of a smart toothbrush could trigger a reward. Parents could even be rewarded for their good behavior (like the All State good driver discount). Parents that check in on time, get their kids to brush properly, comply with recommendations, etc. could qualify for rebates which kick in automatically when the system shows compliance.
Glenn: It sounds awesome, but are you saying there’s nothing out there today to do this?
Mike: No. There are rewards systems. But they require you to sign up with a company and probably pay a fee for the service. Smart contracts would allow you to create an agreement between you and your patient or you and a parent directly – peer to peer.
- Smart insurance. There’s a company piloting a smart insurance program for smartphone batteries. When a sensor in the battery detects it’s about to fail (they usually have a 2 year life), the insurance contract is triggered to automatically pay the user to replace the battery. Such a protocol would have widespread applications for the Internet of Things. Any number of machines and tools Orthodontists use could become part of such a program.
Also, in the future, an orthodontist could offer a smart insurance product guaranteeing their work for an extended period of time by requiring a patient to use a smart retainer which would contain miniaturized sensors. If the patient uses the retainer on a consistent basis (which is known from the sensors), but their teeth still need adjusting, the insurance might kick in.
- Supply chain monitoring. A startup is using smart contracts to increase transparency across supply chains. Let’s imagine a fleet of trucks transporting refrigerated goods (biologics, for example). A smart contract would be written to automatically pay the supplier once a truck reaches a destination or when goods are delivered. However, an array of sensors monitor conditions (like temperature) and if the data from these sensors indicate a quality control problem, the doctor would know not to accept delivery and not to pay for it.
Glenn: It sounds like something we could already do today, no?
Mike: Close, but blockchain provides transparency that you can’t get from closed systems.
Making deals – By combining smart contracts with machine learning programs on the blockchain, it would be possible to accurately predict which parties are more likely to uphold their end of a contract. This could form a rating like a traditional credit score. Using this information, businesses could adjust the terms of their contracts to account for increased risks or offer better terms to more favorable clients.
Investments – Cryptocurrencies could become the next big asset class. The CME group, which operates the largest options and futures exchange in the world, just developed a Bitcoin based futures contract. “Given increasing client interest in the evolving cryptocurrency markets, we have decided to introduce a bitcoin futures contract,” said Terry Duffy, CME Group Chairman and Chief Executive Officer. “As the world’s largest regulated FX marketplace, CME Group is the natural home for this new vehicle that will provide investors with transparency, price discovery and risk transfer capabilities.” Some analysts believe this will be a catalyst for more institutional trading and mainstream investments in cryptocurrencies.
Initial Coin Offerings (or ICOs) – There are hundreds of companies raising money through ICOs. There’s no reason to believe that some Orthodontists or Orthodontic suppliers couldn’t raise money the same way, especially with a business model that can scale and provide a return on capital. A proper discussion about might constitute a good business model for an ICO would require much more time and energy.