Blockchain and Its Importance
Blockchain technology is a way to structure data without the need for a central authority. It is a decentralized and distributed database that hosts a continuously growing number of records. The database stores records in blocks rather than assembling them in a single file. In other words, these records are split into blocks. Each block is then “chained” to the next block and contains a cryptographic hash of the previous block, a timestamp, and the transaction data which are linked using cryptographic signature and as a result, records cannot be altered, and any attempted changes are visible to all participants. This makes the Blockchain a persistent, transparent, public, append-only ledger. It is a system that you can add data to and not change previous data within it. Blockchain does this through a mechanism for creating consensus between scattered or distributed parties that do not need to trust each other but just need to trust the mechanism by which their consensus has arrived at. These blocks are mined, reach consensus and then added to the Blockchain. In the case of Blockchain, mining relies on some form of challenge such that no one actor on the network is able to solve this challenge consistently more than everyone else on the network. It randomizes the process and in theory ensures that no one can force the Blockchain to accept a particular entry onto the ledger that others disagree with. One that relies on the mechanism for a peer-to-peer network that can maintain updates to the ledger and then verify those updates in such a way that it is impossible to defraud and impossible to alter after the fact. By design, a Blockchain is tamper-evident and unhackable due to its distributed nature.
In a decentralized network, we have mining nodes that keep an updated copy of the Blockchain. Every copy contains every transaction ever recorded. The data remains intact and free of corruption because there are multiple copies held in multiple nodes. This process allows blockchains to be used as ledgers, which can be shared and corroborated by anyone with the appropriate permissions. These distributed ledgers can be spread across multiple sites, countries or institutions. Being a distributed ledger, no single party has control and there’s no central location for the ledger and that’s the peer to peer methodology behind Blockchain. This way data integrity is maintained by massive database replication and computational trust. As of September 2018, the Bitcoin Blockchain is approximately 185 Gigabytes in size.
Blockchain technology has been called the next stage of the Internet by many. Our current Internet is an Internet of information. It’s based on the concept of copying and distributing information. Be it video, email or data. All of these are copies. For example, if you want to watch a video on YouTube or receive an email, you are looking at a digital copy of the original. But what if we take this further to the next stage? What about assets that provide real value? Like contracts such as a house or a car ownership, a stock, a bond, money, votes or digital identities. The problem is you don’t want to have these things as copies. For example, you don’t want to send someone 1,000 dollars yet still have the original 1,000 dollars under your name. This was called the double spending problem by cryptographers. Despite the name, this basically means the problem of having two digital copies of something that should only have one unique identity. The cryptography element of the Blockchain enabled it to be the first technology of its kind to solve the double spending problem. Now for the first time we can build a new stage of the Internet based on real value, built entirely on mathematical verifiability. And this is partly why it’s such a big deal. Although Blockchain technology is the foundation for cryptocurrency (such as bitcoin), there are a variety of financial and accounting applications beyond the realm of cryptocurrency.
