February 2018 Legal Pad Legal Education Article
By Jackie Sundberg
Ever wondered about Blockchain Technology? Our speaker this month is Sara English, Assistant General Counsel at Mutual of Omaha, and her topic is “The Blockchain: What It Is and Why It Matters to Legal Professionals.” I had not even heard of this new technology; now I learn how Blockchain Technology is on the brink of creating a new type of internet, one that will securely store and authenticate information about every asset, device, and individual. I am all for a secure internet, so it may be helpful to know a little more about Blockchain before it becomes a way of life for us all.
What is it? Blockchain Technology is hyped to be an unalterable database for transaction validation. It will play a critical role in every industry imaginable, including financial, health care, real property, elections, and law. As a database running underneath cryptocurrencies, such as Bitcoin and Ethereum, it will guarantee, automate, and reduce overall transaction costs by cutting out the middleman (think PayPal) in guaranteeing financial transactions. It will be a decentralized, real‑time digital ledger useful in tracking everything from food supplies to managing identities, on a global basis.
By use of encryption techniques, Blockchain will control the creation of monetary units to verify the transfer of funds and settlement of trades. In financial services, it will create faster, cheaper settlements while improving transparency. When used for voting, Blockchain would enable secure and immediately verifiable election results. As for healthcare settings, a patient’s encrypted health information could be shared among providers without any risk of a privacy breach.
Blockchain is a “proof of work” mechanism that works through a process of “blocks” that are created and encrypted at every step in the process by the network participants. Since each block is validated along the way, if an attempt is made to alter an existing block, the chain of successively encrypted blocks is broken, thereby creating a new block. The creation of this new block serves to alert the participants, and the corrupt block is rejected. An unbroken block sequence proves authenticity in the chain.
How does it work? In a nutshell, the process goes like this: A block transaction is input and a unique hash value is assigned to the block. These hash values are then combined into a system known as a Merkle Tree. These then go into the block’s header, along with the hash of the previous block’s header and a timestamp. The header then becomes part of a cryptographic puzzle that is solved by manipulating a number called the nonce. When a solution is found to all this hashing, a new block is added to the Blockchain.
Here is some new tech jargon to become familiar with:
~ a “hash” is an algorithm that turns a large amount of data into a fixed length hash.
~ a “Merkle Tree” leads to a single hash value that will validate and authenticate every piece of information in a block, verifying it has not been tampered with in any way.
~ a “nonce” is a block containing a 32-bit field; the hash of a block contains a long run of leading zeros.