Since the first blockchain-based transaction was executed more than a decade ago, the technology’s use has expanded far beyond cryptocurrency. Experimentation and adoption in sectors as varied as supply chain management and traditional lending demonstrate blockchain’s diverse applicability in environments where transparency is necessary, but trust between partners is lacking. Though investment projections for the technology look promising, blockchain’s ability to disrupt and transform traditional sectors, like those mentioned above, remains an open question.
Blockchains are digitally distributed ledgers, or records, of exchanges conducted across a decentralized network of computers. This kind of data transmission system, called a peer-to-peer (P2P) network, allows for sharing of the distributed ledger and the information stored on it across all or selected computers, without needing a dedicated or centralized server. Though distributed ledger technology and P2P networks have both existed for decades, blockchain-based transactions—the first of which took place in January 2009—combine these components with cryptography and consensus methods. This unique combination results in a tamper-evident and auditable system of record, eliminating the need to validate transactions via a central authority.
In simple terms, a blockchain is a chain of transactions, or cryptographically linked blocks, that each contain a unique set of data. As participants conduct more transactions and new blocks are added to the chain, previous entries in the ledger cannot be modified, making the data stored on-chain immutable. Thus, the use of a blockchain to validate and store transactions creates transparency in situations where trust is required but lacking, like a complex supply chain environment with multiple or competing stakeholders.
Blockchain is commonly associated with cryptocurrencies, most notably Bitcoin and Ethereum’s ether. While the majority of capital investment in blockchain since June 2020 has gone towards cryptocurrency-related endeavors, companies and governments continue to explore its potential in other sectors. This includes traditional financial services, like banking and lending, healthcare and insurance, government, election security, education, gaming and entertainment, and more.
In recent years, blockchain has also gained noteworthy traction in retail and logistics, with opportunities to enhance the traceability of products, streamline product delivery, and improve coordination between partners. As the commercial blockchain market diversifies and matures, governments around the globe continue to invest in the technology. Both Russia and China have highlighted the strategic benefits of blockchain for securing battlefield information, managing weapons and equipment, and more. Though the US government is exploring the technology’s utility through agency-led pilots and projects, it has not released a coordinated strategy for blockchain development and deployment. Key blockchain technology providers, like IBM, argue that this has limited structured investment and research in areas of potential consequence for national security, like defense supply chain management, IT asset management, identity management, contract management, and international trade.