Blockchain explained: What it is and isn’t, and why it matters
Simon London: Hello, and welcome to this edition of the McKinsey Podcastwith me, Simon London. Today we’re going to be talking about blockchain, the technology that underpins Bitcoin and other cryptocurrencies. As we’ll hear, blockchain has a lot of potential applications, in areas as diverse as supply-chain management, trade finance, insurance, and even cybersecurity. But there are a lot of misconceptions and often good reasons why a blockchain may not be the right tool for the job. To help us understand the ins and outs, we’re joined by two McKinsey partners who are working closely with clients on these issues. They are Brant Carson, who’s based in Sydney, and Matt Higginson, who’s based in Boston.
\We should start with a quick level set to make sure everyone—notably me—understands what we’re talking about. Matt, would you mind kicking off by answering the beguilingly simple question, what is blockchain?
Matt Higginson: It’s a great question. And there have been many complicated explanations out there. The way I think about blockchain is really to think of it as a database. And it’s a database which is shared across a number of participants. We think about a network of participants. Each has a computer. The idea is that at any moment in time, simultaneously, each member of that network holds an identical copy of the blockchain database on their computer. That’s the essential principle. Information is potentially available to all participants at a moment in time.
When I think about that definition as a database, I think of it in three parts. The first is that this is a cryptographically secure database or distributed ledger. That means that when data is read or written from the database, you need the correct cryptographic keys to do that: a public key, which is a basically the address and the database where information is stored, and a private key, which is your personal key, truly the security which prevents other people from updating the information unless they have that correct key. It’s secure data.
Second, it’s a digital log or digital database of transactions. Digital’s important because, in many industries, we’re still going through the process of digitization, and that’s an important first step before you can even think about using blockchain.
Finally, this is a database that’s shared across either a public or a private network. The most famous public network is probably the Bitcoin blockchain. That is something which has been around for many years. And you can join that network. You can become a node on the network with a computer, without any expressed permissions. And you can leave again. So no one really knows who’s joining and leaving.
Conversely, you can have a private blockchain, a private network, which in an application like banking is probably much more culturally acceptable, in which you know who’s participating, who’s got access to data, who’s holding a copy of that database.
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