The following is an opinion article by BTL CTO Hugh Halford-Thompson
Businesses across all industries can gain an unfair advantage over others by manipulating data. This type of fraud occurs under many forms - an employee who signed off on a bad trade and later put somebody else’s name to it, perhaps the amendment of a contract where one party regretted the terms they signed up to. Another common case involves athletes or their sponsors manipulating drug test data they are not content with.
In order to maintain futureproof security of a system, additional security layers are constantly added on and become expensive to maintain. Even then, a controlling party will always have the ability to modify contained data
When multiple parties are required to keep the same ledger up to date, there has never been a standardised and efficient way of achieving this in an efficient manner, and when one party’s ledger gets out of sync it can be very complex trying to work out which ledger is correct. This is why many trading systems involve a central trusted entity like a clearing bank or stock exchange. The market participants agree to trust the central entity’s ledger as a single point of truth. Other trusted entities include services where consumers have to trust central companies like gambling sites to not edit their data. Until now companies have built up trust with their customers over time by gaining a reputation.
Blockchains remove the need for central trusted entities. They enable new companies to enter a market and transparently prove to consumers that they are unable to change historical data, thus enabling them to trade without having to fully rely on trust.
So how does all this work? Blockchains are distributed ledgers of data and are a particularly efficient way to ensure multiple untrusted parties keep their ledgers in sync with each other. A blockchain is literally a chain of blocks of data. Each block contains a list of transactions entered into the ledger and transactions can be financial or asset transactions or simply an audit log of time sensitive data. By combining technologies such as peer to peer networks, public key cryptography and cryptographic hashing, blockchains ensure untrusted or semi trusted parties can work against the same ledger and ensure they keep in sync without requiring a central trusted party.
Part of the function of auditing is to check that companies have not changed historical data to hide malpractice. By entering data into a blockchain verified by the right parties a company can prove to consumers and regulators they are unable to change the data. This completely changes the game when it comes to the function of the auditor and could redefine the structure of many regulated industries.