What is blockchain?

While blockchain is used by cryptocurrency, it is also standalone technology which has many potential applications.  Ross Thompson, Accountancy and Finance Lecturer at Arden University explains how the technology works and the potential opportunities for the future.


A blockchain is an encrypted distributed ledger system that can be used to enter, verify, store, and retrieve transactions.  Unlike traditional, centralised ledgers, blockchain systems use a network of independent computers (nodes) to manage the transactions.  Transactions are entered on the network in time-stamped and linked blocks by a system of nodes based upon a consensus algorithm.  It offers several attractive advantages over traditional systems:

  1. As records are kept on multiple computers, data security is enhanced. Data losses from theft, fires and catastrophes are greatly reduced.
  2. Once entered, it is virtually impossible to delete or tamper with the records.
  3. All participants have relatively unfettered access to their records. It promotes transparency.
  4. The consensus algorithms use incentives to ensure miners (supernodes) enter and approve transactions diligently and swiftly.
  5. It removes the need for intermediaries and is a true peer to peer system. It can reduce costs and reduce access delays.


What purposes is it serving in business currently and what opportunities are there for it in the future?

Blockchain systems can be token or currency focused such as Bitcoin, Dogcoin, Ether, Ripple, etc.,  but can also be used in a vast array of other areas including healthcare records, supply chain records, education transcripts, voting systems and insurance broking.

Blockchain can be used to support a public network such as Bitcoin or also private ones –    several individual corporates or alliances are already using or conducting research to use the blockchain in this way.

Blockchain has tremendous growth prospects as it can potentially be used to improve any transactions’ management system that requires regular updating and user access to their records.  The expansion of blockchain applications in both public and private domains also looks set to increase because of complementary advancements in technologies such as artificial intelligence, machine learning and smart contracts.  This opens up the potential for blockchain applications in areas such as manufacturing, farming, and design.  Blockchain could feasibly be used to provide the scaffold for the Internet of Things (IoT), although connecting disparate assets, machinery, and equipment present interoperability challenges.

How energy-intensive is it, and how damaging could it be to the environment? What stats are there to back up any assertions?

The most energy-intensive blockchain application is cryptocurrencies.  This is because the consensus algorithm uses the ‘proof of work’ concept.  To confirm a block of transactions requires a specific group of participants called miners to solve a complex mathematical puzzle.  These can only effectively be solved by “brute Force” iterative computing involving significant hardware that consumes very high rates of electricity.  It is incredibly difficult to accurately compute the total power requirement to support all global blockchains, however, estimates from the authoritative Cambridge Centre for Alternative Finance estimate that Bitcoin consumes c110TW hours per year amounting to about 0.55% of global electricity production.  This is similar to the electricity consumption of countries such as Switzerland or Malaysia.  However, consumption does not equal carbon footprint – much depends on the fuel used to produce this electricity; as Bitcoin miners tend to be pseudonymous, it is very difficult to trace them to single locations and identify power sources.  It is known that there is a major concentration of miners and mining pools in China where coal provides a significant percentage of the fuel to run power stations. Bitcoin’s footprint is likely to be high.

Bitcoin mining also creates significant quantities of e-waste.  This is because miners must constantly invest in new hardware to remain competitive in the race to solve the proof of concept algorithms.  Blockchain hardware is quickly made obsolete and often must be dumped as it has few alternative uses.

If not, how can they marry their desire to be eco-friendly with their use of blockchain?

The carbon footprint and energy consumption of other, non-coin blockchain applications is much lower as there is greater usage of alternative algorithms that are less power-hungry, for example, proof of stake and proof of authority.  It may be that in time, cryptocurrencies will replace their algorithms with alternatives to proof of work, Ethereum already has well-advanced plans to do this.

It may also be possible to incentivise miners to use green energy to solve the puzzles involved in the proof of work algorithms.

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