If you pay attention to any news surrounding technology and employee benefits, you’ve likely heard mention of blockchain. But what is it, and what do you need to know about it?
In their article in the May issue of Benefits Magazine—“Coming to Grips With Blockchain”—Michael Stoyanovich and Frank E. Tanz provide some basics on the technology and describe its potential applications. Stoyanovich and Tanz are vice presidents and consultants with Segal Consulting.
What Is It?
Blockchain is a new form of ledger, which is typically a collection of accounts or a list of events and transactions. Ledgers used to be books and are now computer databases. In the future, ledgers may be blockchains.
Blockchain is different from past forms of ledgers, because it uses distributed technology, Stoyanovich and Tanz write. That means instead of storing and processing data in a centralized database, data is shared member to member across all members of a network (also known as nodes).
That means approved users can add or change data in the blockchain and instantly view transactions made by other users.
The advantages include that data is replicated and synchronized, all but eliminating any chance of discrepancy or manipulation. Data also is encrypted so that every time a user changes a unit of data (a block), it automatically re-encrypts all of the previous transactions (the chain). This reduces the risk of privacy breaches and unauthorized data manipulation.
Also, everyone on the blockchain must agree to the change, which ensures that it is transparent, consistent and immutable without going through a centralized authority like a bank.
Is Blockchain the Same Thing as Bitcoin?
People often confuse blockchain and the cryptocurrency Bitcoin, partly because a 2008 white paper introduced both concepts at the same time. They’re not the same thing, however. Although blockchain powers Bitcoin, cryptocurrency is just one application of the technology.
Who Uses Blockchain?
It is most widely used by cryptocurrencies, but blockchain is being studied for use in:
- Supply-chain management—to validate the sources and quality of goods as they move from suppliers to end users
- Financial services—to reduce the cost of real-time transfers between bank accounts while mitigating transactional risks
- Property rights—to register ownership by verifying identity and preventing fraud and error
- Retail—to protect consumers who will not need to provide personal information to make purchases.
Possibilities in health care include tasks such as claims-management payments and prior authorization and patient records.
Should My Organization Be Adopting Blockchain Technology?
Aside from the cryptocurrencies, no major blockchain initiatives have advanced beyond the research or beta (limited testing) phase, Stoyanovich and Tanz explain. “While blockchain has real promise, much of its value has yet to be realized,” they write. “For now . . . it is enough to know the technology. Don’t feel pressured to adopt it yet. The market is not mature outside of cryptocurrency, and it will take a while for viable blockchain solutions to make their way into employee benefit design and administration.”
[Learn More: Members can read the full article Coming to Grips With Blockchain in the May issue of Benefits Magazine.]
Kathy Bergstrom, CEBS
Senior Editor, Publications, at the International Foundation
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