Recently, there has been an explosion of excitement around the words: ‘blockchain technology.’ While most of the popularity can be attributed to the fame achieved by ‘cryptocurrencies’ (and particularly Bitcoin-more about this later!), blockchain technology is undeniably a revolutionary invention.
Although this technique originally dates its roots back to a research paper published in 1991, the idea was finally implemented in 2009 by Satoshi Nakamoto with the innovation of a digital cryptocurrency called Bitcoin, thus laying the foundation of blockchain technology.
But, what exactly is this technology, and how does it work?
To put simply, blockchain technology is a method of storing data on chains ofblocks to allow for a distribution of information across several nodes i.e. computers that form the blockchain system, all the while allowing for a decentralized, transparent and secure access.
Blockchain technology provides an elegant way for forming a Peer-to-Peer Network-eliminating the need of trusting third- party institutions for digital interactions.
Here’s a classroom example: If someone wanted to send you some money, they would have to involve a single institution such as a bank, and trust them to make the transaction go through. With blockchain, the person is placing their trust in a network.
This technology is an ingenious mechanism that brings about a trustless and distributed consensus without the need of third-party services. Each node on a network serves as a ‘miner’; a validator that ‘mines’ i.e. authenticates the information across the network by solving a mathematical puzzle. Only when the information on the block is validated, is it then stored on the public blockchain. Miners on the network compete to be the first to find the solution in order to achieve a monetary reward.
One of the key features of Blockchain technology is being a ‘distributed ledger.’ Identical copies of the ledger exist with everyone on the network. Think of Blockchain Technology as a Google Document. Individuals can both access and edit the same single version of the particular document, as opposed to sending a Word document to a recipient and having to wait for them to send it back before you can see, or make changes to it.
But while the Google Document is still on Google’s server, the beauty of blockchain technology is that the information is decentralized-no specific entity is in control. Say goodbye to intermediaries, and a hello to lower service costs.
Additionally, the information isn’t stored on just one location; blockchains are hosted by several thousand nodes, and therefore the records are freely accessible to anyone on the internet.
The element of enhanced security in blockchains lies in the fact that information stored on the blockchain doesn’t have a centralized control, making it difficult for hackers to corrupt, and thereby avoids a single point of failure within the system. Blockchains also maintain their integrity by the self-auditing system to guarantee the accuracy, completion, traceability, and consistency of the data contained in the block. This also ensures a person doesn’t partake in a conflicting transaction, commonly called a ‘double spending’ i.e. spending the same amount of assets twice.
So, even if you managed to change the information on a block, you would also have to do so on the millions of nodes that make the network! Another factor that adds to the security detail of blockchain technology is the use of encryption technology to create a protected electronic identity. This employs a string of randomly generated text called the ‘public key’ (a person’s address), and a ‘private key’ (a person’s password) – A combination of both serves as a digital signature, providing a strong control of ownership.
However, while blockchain technology does seem full of promise, there is a dark side to it too. For instance, a distributed network means a constant need for a high number of nodes and a substantial amount of computing power, thereby increasing energy consumption. Additionally, human error may lead to inaccurate information-popularly referred to as “Garbage In, Garbage Out.” Other reasons such as the complexity of blockchains, the issue of redundancy with blockchain networks, and slow transaction speed could be a deterrent to the expansion of blockchains.
By now, you (hopefully) understand the enormous potential of blockchains. The next question arises; “What can we use it for?”
The answer: Anything and everything. Especially if it has a need of keeping a trustworthy record.
So, remember Satoshi? He originally used blockchain technology as a foundation to build a ‘digital currency’ called Bitcoin which is used in an electronic peer-to-peer system of transactions.
Subsequently, another platform, called Ethereum, uses blockchain technology to provide others with a tool to develop their own set of decentralized applications. And as blockchain technology makes waves in computing history, the tech world keeps getting wild with ideas. Blockchain isn’t just a means to run a decentralized sharing of economy, but from a transparent governance to a speedy file transfer, from protection of intellectual property to the automatic management of electronic devices, from creating crowd sourced venture funds to healthcare databases, from electronic voting systems to online music, from personal information and identification to land title registration-The list is extensive, the impact even more so.