The-Accountant-Jan-Feb-2018

Information BUSINESS PRACTICE Technology AND DEVELOPMENT
By FCPA Jim McFie, a Fellow of the Institute of Certified Public Accountants of Kenya
A
blockchain is a distributed
database, meaning that
the storage devices for the
database are not all connected
to a common processor. The
blockchain maintains a growing list of
ordered records, called blocks. Each block
has a timestamp and a link to a previous
block. Cryptography ensures that users
can edit only the parts of the blockchain
that they “own” by possessing the private
keys necessary to write to the file. The
blockchain also ensures that everyone’s
copy of the distributed blockchain is kept
in sync. Imagine a digital medical record:
each entry is a block. It has a timestamp,
the date and time when the record was
created. And by design, that entry cannot
be changed retroactively, because the
record of diagnosis, treatment, etc. has
to be clear and unmodified. Only the
doctor, who has one private key, and the
patient, who has the other, can access the
information, and then information is only
shared when one of those users shares his
or her private key with a third party —
say, a hospital or specialist. This describes
a blockchain for that medical database.
Blockchains are secure databases by
design. The concept was introduced in
2008 by Satoshi Nakamoto, and then
implemented for the first time in 2009
as part of the digital bitcoin currency;
the blockchain serves as the public ledger
for all bitcoin transactions. By using
a blockchain system, bitcoin was the
first digital currency to solve the double
spending problem (unlike physical coins
or tokens, electronic files can be duplicated
and spent twice) without the use of an
authoritative body or central server.
The blockchain owes its name to the
way it stores transaction data —in blocks
that are linked together to form a chain.
As the number of transactions grows,
so does the blockchain. Blocks record
and confirm the time and sequence of
transactions, which are then logged into
the blockchain, within a discrete network
governed by rules agreed on by the
network participants.
Each block contains a hash (a
digital fingerprint or unique identifier),
time stamped batches of recent valid
transactions, and the hash of the previous
block. The previous block hash links
the blocks together and prevents any
block from being altered or a block
being inserted between two existing
blocks. In this way, each subsequent
block strengthens the verification of
the previous block and hence the entire
blockchain. The method renders the
blockchain tamper-evident, lending to the
key attribute of immutability.
The blockchain contains transaction
8 JANUARY - FEBRUARY 2018