South Korea’s recent craze for cryptocurrencies like bitcoin and Ether has thrust to the spotlight blockchain -- the foundational technology behind the virtual currencies being traded in large numbers here every day.

While bitcoin is the most widely known application of blockchain, there is more to the distributed ledger system than just digital currencies. It’s a game-changing technology with wide potential to transform how different industries work.

Blockchain is already in use today to improve and simplify existing business tasks, whether it is making financial transactions and personal authentication procedures simpler and safer, or making logistics maintenance a more self-sufficient endeavor.

So, what exactly is blockchain technology, how does it work and why is it so revolutionary?

Simply put, blockchain is an online ledger that maintains a continuously expanding list of data records from different parties. Records are saved into a chunk of data called a “block,” then cryptographically linked to a “chain” using complex algorithms -- hence the term “blockchain.”

Once a block is linked into the chain, the millions of others joined in the blockchain network gets an updated copy of that information in real time.

This does not mean that the content of the data on the blockchain is shared with everyone. Data saved on the blockchain is “pseudo-anonymous,” meaning that while people can see that a transaction was made, the specifics aren’t shown.

The ledger cannot be altered once updated, only added to, and is shared with everyone in the network in real time, making it transparent, secure and largely hack-proof.

Another major advantage of blockchain is that it is self-operational. It removes the need for a central authority like a bank or a government agency -- all prone to cyberattacks -- which have traditionally acted as a sort of middlemen that stores information and facilitates data exchanges.

Blockchain also exists in two forms: public and private.

In a public blockchain -- such as those used for cryptocurrencies -- anyone can participate in the peer-to-peer network and there is no central authority.

On the other hand, a private blockchain network requires an invitation and access is validated by either the network starter or by a set of rules set in place by the starter. Once an entity joins the network, it plays a part in maintaining the blockchain in a decentralized manner.

Eyeing blockchain’s potential, information technology service companies around the world, including in Korea, have been racing to build private blockchain systems to apply the technology and bring improvements to various industries.

Korea’s blockchain applications

Samsung SDS, the IT service solutions unit under Samsung Group, launched last year a blockchain-based cloud computing platform called Nexledger, offering digital authentication, digital payment and digital stamping services operating on a blockchain network.

With blockchain, customer identification information required for authentication is encrypted into each customers’ device and shared with a requesting company on-demand. The distributed ledger technology enables direct payments between parties, reducing dependence on third-party mediator institutions.

Electronic documents saved on a blockchain network can be automatically checked for authenticity on their own, cutting costs and lowering operational risks, according to Samsung SDS.

So far, the IT service company has applied its blockchain platform to credit card firm Samsung Card. Nexledger has been used to strengthen the security of the card company’s biometric authentication system and to create a simplified electronic document authentication model. The blockchain system has been picked up by manufacturing-focused Samsung SDI for similar purposes as well.

On the finance front, Samsung SDS is working with the Korea Federation of Banks to create a blockchain-based system in which the participating banks save their transaction records in share data chunks with one another.

Together with private and public partners, Samsung SDS has also launched a blockchain consortium for marine transport. Using blockchain, importers and exporters are able to exchange digital documents, such as a bill of landing and letter of credit, free of potential forgery risks.

By saving data from Internet of Things sensors attached on the traveling shipment -- including location, temperature, humidity and external shocks -- on a blockchain, its authenticity is confirmed, allowing for accurate insurance fee calculations, the company said.

The Samsung subsidiary is also a member of Hyperledger, a global blockchain project run by the Linux Foundation, as well as a participant of the Enterprise Ethereum Alliance which supports Ethereum and its related development and initiatives.

Similarly, SK Holdings C&C has introduced a blockchain-based digital identification service built on the blockchain, which allows users to log in to multiple services with one ID.

It also introduced a blockchain-based logistics system that will record and share logistics data with multiple parties involved in the process at once through a peer-to-peer blockchain network.

LG CNS has partnered with the world’s biggest finance sector blockchain consortium R3, launching a new private blockchain solution based on R3’s proprietary blockchain platform Corda.

It’s currently working with local banks and financial institutions to introduce a variety of blockchain-based services including a self-sustaining mobile payment system with cheaper operational costs.

Meanwhile, Kakao, operator of Korea’s dominant mobile messenger KakaoTalk, is using blockchain to simplify users’ financial transactions. Last year, Kakao’s finance technology unit Kakao Pay introduced a mobile authentication service based on blockchain.

Kakao Pay Authentication simplifies authentication procedures between the institution and customers by documenting and delivering customers’ digital signatures -- signed by entering a password on KakaoTalk -- to the institution.

Users can provide their digital signatures to important digital documents such as a consent to private data collection form, insurance subscriptions and loan contract forms.

On the health care front, Seoul-based data technology startup Medibloc is working to create a new patient-centric medical data-keeping platform using blockchain. The envisioned platform would bring a patient’s medical data -- now scattered across multiple hospitals’ storage systems -- under a single, tamper-proof distributed ledger system that is owned by the patient.  

By Sohn Ji-young (jys@heraldcorp.com)