Blockchain: What is it, and why should you care?
By Reuben Machinga
With the meteoric rise in the price of cryptocurrencies over the last few years, many people have started to pay attention. I wonder, has the attention gone beyond Bitcoin, to the technology that makes it all work?
Underlying cryptocurrency is blockchain technology. This is the force that drives it. Let’s find out what it is, where it’s being used, and, perhaps most importantly, why you ought to care.
Blockchain? What is it?
To understand just what blockchain is, perhaps we should start off with explaining just how our world systems are currently structured. From there, the magic of blockchain will appear.
The structure of our world revolves around central authority. Just about all our institutions today, be they governments, schools, or banks, work by having a strong, central authority. Its purpose is to gather, control, and disseminate information that flows within the organisation.
Let’s take the first example of government. It works, through a massive bureaucracy, by collecting, organising, and sharing all sorts of information needed to govern a territory. To narrow it down, let’s pick just one aspect of government. Most governments have a central land registry. It keeps records of who owns what piece of land and is updated whenever the ownership of that land changes. The image that comes to mind is a very large building with seemingly endless rows of cabinets. Inside them, copies of title deeds and transfer documents are jam packed, almost ready to rip apart the cabinets. Okay, perhaps that’s a little too dramatic. Nevertheless, we can agree that there’s a lot of data inside these buildings.
Actually, this being the 21st century, let’s replace rows of cabinets with a sterile looking, air-conditioned, server room. Stored on these servers are electronic copies of those title deeds and transfer documents. In essence, it’s a digitised version of the same central model. Hold on to this point, we’ll come back to it shortly.
Can we do away with central authority and somehow distribute its functions? Well, this is exactly what blockchain technology is attempting to achieve. Blocks of information tied together in a chain: blockchain. See, we trust central authorities to have accurate information about all manner of things. If we do away with central authority, how do we agree on the validity of information? I realise this sounds a bit abstract right now so let’s come back to our lands registry example.
Without that central paper or electronic database, how can we trust the validity of any title deed?
Here’s where blockchain appears to the rescue, like manna from the heavens. Instead of the central server or registry, let’s have everyone keep a copy of all the records. Beyond that, let’s make all changes to the record public and, perhaps most importantly, unchangeable without majority consent. To top it all off, let’s make changes happen in real time for every single computer on the network.
This distributed land registry we have created ensures that any individual member of this network knows what everyone owns. Not only that, any change to the registry is public and subject to majority consent. Spreading out information and responsibility in this way means we can do away with having to trust a powerful central authority.
You may ask, however, how can our distributed registry be trusted? Surely it is vulnerable to attack and, once broken into, a malicious hacker could go and change records. Before we answer that question, let’s look at the current centralised system for a minute. If all records are held in one place and that one place is THE trusted authority, do we not have a scenario ripe for attack? Our malicious hacker would have just one site to breach and manipulate all the records in the system. Remember, our distributed system works with majority consent. An attacker, therefore, would have to control more than half of all the computers in the system to force an illegitimate transaction. This is much harder to do than attacking one central server.
To wrap things up, let’s quickly recap. Our distributed land registry shares the entire records to every single person in the network. The records are live, meaning that changes happen in real time. For them to be accepted, everyone has to agree that they are valid. A set number of changes form a block and these blocks are tied together in a chain. Once blocks are chained, so to speak, they cannot be changed. They become a history that cannot be altered or rewritten.
Bitcoin may well be the most recognisable blockchain
Bitcoin is one of the most common uses of blockchain technology. In the case of Bitcoin, as well as other cryptocurrencies, it’s easier to see how and why blockchain is sometimes called a distributed ledger. In the Bitcoin blockchain, account balances are, in an indirect fashion, public knowledge. That’s not to say I can know your account balance. Rather, whenever you transact using Bitcoin, I, along with everyone else on the network, have access to means of knowing if you have the funds you claim to have. Once we agree that you do and your transaction is executed, the change in your balance is, again, public knowledge. The same thing happens on the other person, to whom you’re sending funds. Before I alarm you that using Bitcoin compromises your privacy, the use of public and private keys ensures that you can’t be personally identified on the network. At the risk of being unduly repetitive, Bitcoin doesn’t need a central authority like a central bank, or a clearinghouse, because account balances and transaction histories are distributed across the network. Trust and, therefore, authority are not needed.
The future, and why you ought to care
As I said in the beginning, most of us tend to conflate cryptocurrency with blockchain. This is unfortunate. While cryptocurrencies are definitely revolutionising finance, its underlying blockchain technology has the potential to do the same in many other fields.
A blockchain for medical records has already been imagined. Although somewhat different to the way my example is set out, Sweden’s state land registry is experimenting with blockchain technology as well.
After saying all this, why should you care? This stuff can seem all too technical and unrelated to our day-to-day lives. I’d encourage you to pay attention, though. Blockchain is here. It’ll force us to reconsider central authorities everywhere. I’m not just talking about central and commercial banks. Newer institutions are being challenged as well. After all, Ethereum is, in effect, trying to build a world computer!
Without blockchain, there would be no Goldma ICO and all the other innovations like it coming your way.
Sometimes, and in this very case it feels like, revolutions happen quietly. Somewhat hidden from world’s gaze, the world is changing as we speak.
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