Blockchain Technology Explained
A long time ago, to give your friend something the only way to do it would be to have someone physically give it to them yourself. If your friend was halfway across the continent then you’re out of luck.
The progress of technology has slowly brought the world closer together from the phone to the Internet and we’ve been able to communicate with each other every century faster and faster. However, to help facilitate all of this we’ve always needed the use of a third party. If you wanted to send money you needed a direct payment service, if you need to send a package you need to use a delivery service, and a message requires a third party app or company to carry it for you.
But what if there was a way to get rid of the middlemen, and still exchange value, information and ideas?
There is and it’s called the Blockchain.
What is blockchain technology?
The blockchain is a type of digital ledger where a cryptocurrency such as Bitcoin stores a record of its transactions made. This record is both chronological (the record is sorted by time of transaction) and public (everyone can see everyone’s transactions). Importantly, it often isn’t stored somewhere internally on a single server or a central location, but is actually decentralized (distributed/spread out) across an entire network — two different computers hosting the blockchain ledger can be stored simultaneously, halfway across the world from each other.
When designed as such, blockchains do not have one sole owner like the ledger balance you have with your bank; instead, ownership is shared among all its users. In blockchain, everyone shares a copy of the same ledger. This concept of decentralization is crucial and is key to to the philosophy behind discussions involving blockchain.
The blockchain is also a continuously growing list of records, constantly having the contents of its digital ledger appended and linked together using cryptography.
Cryptography is the science of writing and solving codes. In the context of blockchain, it is a form of secure computer code that adds a layer of protection for users. Cryptography can transform a user’s digital signature into an unrecognizable but functional private key — allowing for validation/execution without unsafe exposure. This also is the reason why crypto is the prefix to cryptocurrency, deriving its name from the science.
Securing the Network
To keep the status of the blockchain up to date and secure, the network of public or privately owned computers use one of the many consensus algorithms such as the algorithms “proof of work” or “proof of stake”. Consensus is the absolute process all the computers follow so they can an agreement on what the blockchain ledger should look like when new transactions are being made.
Normally in a centralized system the central authority is incentivized to keep the network updated as the de facto caretaker. Due to its decentralized nature with no single point of control, the blockchain incentivizes the blockchain users themselves by issuing rewards to those who actively work together to achieve a consensus. These constant updates to the ongoing record in the blockchain ledger is also known as mining. In this manner the blockchain sustains itself in a manner that is open, transparent and free from manipulation of a central authority overwatching the ledger. In this manner there is no longer a need for a middleman to be there to have an exchange of value over blockchain.
Once the transaction is recorded into the blockchain, it is immutable. In other words, once the transaction is appended it is permanently recorded and cannot be changed. The only changes that can be made to the blockchain are new transactions, but older records cannot be changed.
How so? In a cryptocurrency like Bitcoin, the math puzzle the computers are solving requires inputting the entire blockchain of transactions that have already occurred. This means that once something is on the blockchain, any would-be manipulator would not only have to change the specific block with the transaction, but all the blocks chronologically after since those blocks’ puzzles solutions were dependent on said specific block. This is nearly an impossible feat to achieve. In this way, one can have faith in the blockchain records and ownership on the blockchain is both true and certain.
So in essence the blockchain is valued and used because its relatively trustless, consistent, immutable and decentralized.
Bitcoin and Beyond
Many have heard of Bitcoin and it’s already been mentioned several times in this article. It’s the first successful application of blockchain technology and intended to be a currency. Since its creation in 2008, it’s grown into something everyone wants to get their hands on. To read more about Bitcoin in particular you can read our introductory article here.
However, the blockchain network is more than just Bitcoin. Often times blockchain and Bitcoin are used synonymously especially by those who are uninformed in the space. It is important to distinguish that blockchain is the technology behind bitcoin and the blockchain can empower more than just a digital version of gold.
The Internet has provided the world with really useful resources, decentralized platforms can develop them even further. Imagine if you could verify the credibility of a service, good, or piece of property that’s listed on the blockchain and only execute a transaction if everything checks out. Suddenly, buying a designer handbag online or renting a spare bedroom from a stranger becomes safer and more efficient. Alternatively consider its ability to benefit developing nations because it can also ensure consumer safety, facilitate remittance payments, and improve the efficiency of government functions.
The principles behind blockchain have been already been developing into other tech ideas like smart contracts and decentralized apps (dAPPS). In other industries blockchain is already being applied from proving fair odds at gambling to improving supply chain management to solving the global counterfeit medical drug problem and much much more.
Closing Thoughts
While the true impact remains to be seen, blockchain technology can provide alternatives to the establishments we use and develop solutions to the problems that the world has yet to solve. If we could time travel to the 1990s, we would find that not very many people understood the internet much less predict its applicative potential. While the concepts behind blockchain can be very complex, the potential behind the technology has yet to be realized — in other words this is an exciting time for blockchain.
