What is blockchain, and how is it connected to cryptocurrency?
Blockchain technology and cryptocurrency are like James Brown and a funky base line: you can’t have one without the other. In 2008, the person or persons Satoshi Nakamoto created blockchain at the same time as Bitcoin to serve as the public transaction ledger for Bitcoin activities. The concept was first conceived in 1991, but we were all too busy with flannel shirts and sunflower hats to do much with it.
How it Works
Like James Brown, I’m gonna break it down now: transactions are the easiest to understand, so let’s use that as our example. It begins when someone pays for something or sends money. That data, including the sender, the receiver, the amount, the date and the time are distributed to a network of computers, known as nodes. These computers belong to individual people, though some might belong to companies. This is where the peer-to-peer part comes in: the transaction info isn’t sent to a bank to check an account balance or increase or decrease an account, it’s sent to people’s computers worldwide. Those nodes use algorithms to check the sender’s crypto account balance to make sure there’s enough to cover the payment. If all nodes agree that there is, it’s confirmed and the record goes into a block, like a digital filing cabinet, and the transaction is complete. Because the exact same information exists at every node, it cannot be altered after the fact, because then it wouldn’t match the other nodes. An attack on the system would require a simultaneous change of data on thousands of nodes, with no one noticing. Its permanent nature means that if a user sends funds to the wrong address or sends too much, it’s gone forever, unless the receiver is nice enough to send it back. These digital filing cabinets, the blocks, don’t exist on their own — they’re linked. They’re a chain. Literally, a digital chain of blocks. One block has specific information about its preceding block, a timestamp and the data for the transactions recorded in it. Hence the name: blockchain.
If you want to check out a 3-D, real-time visualization of blockchain, check out Input | Output’s Symphony of Blockchains. Finally, an interactive picture for all of us visual learners.
Benefits
Because there is no central holder of information, blockchain technology is decentralized in nature. Use of a bank to send money, for instance, is a centralized transaction that depends on the bank to hold the customer’s information, to keep it accurate and secure, and not to tamper with it. Also, if the bank folds or the government seizes your assets, there goes your hard-earned cheddar. With regards to the transfer of funds across borders, until now we’ve had to rely on services like Western Union, pay exorbitant fees, and wait days as the data is transmitted through an antiquated system. Using cryptocurrency and blockchain technology, the same transfer can be done for a fraction of a penny in seconds without sacrificing security, reliability, or accessibility to the funds.
Non-Crypto Uses
As the technology evolves, people are finding ingenious ways to use it. Blockchains can also be internal (not for public view). Enterprises (really, really big companies) in manufacturing, for instance, could use it for supply chain management, HR and payroll, accounting, change management and technical records — all with no servers needed. The information would be real time, immutable, and consistent anywhere on the network. An aeronautics supply chain specialist could locate the exact bolt needed for a specific engine repair and have it sent to the appropriate repair facility in seconds. Large-scale medical providers could use it to keep all patient data, prescription information, medical and billing records with all the same benefits, ensuring a higher level of safety and outcomes. Food producers could use it to trace all supplies and output for efficient recalls and source identification when contamination occurs. Proponents have even explored the idea of using blockchain technology for voting. Imagine not having to wait in line at your local middle school to scribble on a paper ballot. As I’ve said before… it’s about time.
