Blockchain Explained In Four Levels Of Difficulty

Blockchain seems to be popping up everywhere. Terms like ‘immutable record’ and ‘distributed ledger’ are being thrown around, but how deep does the understanding of the average person go? We examine one of the most promising new technologies in four levels of difficulty.

Level 1: The Basics

A blockchain is an unchangeable record of information stored on a decentralised network of devices and agreed upon by the majority consensus of the network.

Level 2: Direct Transaction

Blockchain technology enables individuals and companies to store information and transact in a way that does not require trusted intermediaries such as banks and lawyers to prevent dishonest or inaccurate information from entering the record. Like an accounting ledger, a blockchain consists of lots of separate entries, each one relying on information in the previous entries to be accurate. But unlike a ledger, the way blockchain is designed makes it impossible to alter previous entries. This makes the information theoretically more secure and less vulnerable to hacking, tampering and human error than centralised data deposits.

Level 3: Transparency

Blockchain technology is a way for two or more parties to store and agree on information that is both transparent and secure without the need for trusted intermediaries. Using the technology therefore enables verification of facts and records without needing a stamp from a government official, lawyer or notary. The core difference between systems built on blockchain and traditional structures is that data is verified by mathematical proofs and agreed upon by the majority of a network of peers rather than through transactional middlemen.

The technology behind this process is now advanced enough to theoretically replace some levels of law and finance as the common entity in which group of participants is invested. In this sense, blockchain is one technological solution to systems which are currently forced to delegate much of their resources towards protecting silos of information rather than facilitating trade and the exchange of such information.

While blockchain enables information to be unchangeable at a later date, it also renders information transparent. Don’t worry — your personal medical history won’t spontaneously be made public! It’s more a case of transactional and historical information being made available to all parties who agree and benefit from it being so. A supply blockchain, for example, might make the information about a product’s history transparently available to future buyers.

Level 4: Cryptocurrency

Blockchain technology is most commonly spoken of in the same breath as cryptocurrencies like Bitcoin. However, it’s important to understand that blockchain is not Bitcoin. Here’s an analogy: If cryptocurrency is a tree, then Bitcoin is an oak tree and blockchain is photosynthesis. Blockchain is the underlying technology which allows specific cryptocurrencies like Bitcoin to record the transactional data stream in a way that can’t be smudged or tampered with at a later stage by dishonest parties. How does it do this?

In order for a blockchain to remain secure, the information contained in it needs to be distributed to all of its nodes at regular intervals. The fact that it is distributed prevents the bad guys from hacking a single location and tampering with the information, right? So, in the Bitcoin blockchain, this distribution happens every 10 minutes, adding a new ‘block’ of information to the chain in the process. Each block contains the data of the previous 10 minutes of transactions as well as its own security measure, known as a cryptographic hash function. The difficulty of compromising a blockchain’s integrity begins at mathematically improbable and becomes exponentially more difficult as the number of nodes in the network grows.

Aside from unprecedented human security error, a single hacker has a better chance of politically influencing all the members in a blockchain into verifying corrupt data than decoding a hash function and undermining the security of a blockchain before the rest of the network can reach consensus. In other words, unless members start wanting to lose control of their personal information by verifying false transactions, the system is secure.

Naturally, the emphasis at the moment is on how blockchain can be used in finance. But blockchain’s many uses are being explored and adopted by everyone from governments to individuals as a way of protecting and distributing their information fairly. The benefits of blockchain technology could include transparency in the retail supply chain, comprehensive medical records, improvements in protecting intellectual property, and the reduction of governmental fraud during national elections.

The take-away here is that blockchain makes a lot of sense. In 2018, we’re already seeing all manner of systems being disrupted by the potential for a network of individuals to rely on itself to achieve trust and transparency. Now is an exciting time to become familiar with blockchain and how it seems set to influence the future.