Unlocking the real potential of blockchain
I was at a talk a few days ago about art and technology — as one of the speakers was intending to talk about blockchain and how it could help artists distribute their works better.
However, when it came to explaining blockchain and how to understand its potential, the speaker didn’t really say anything that aided the audience in this respect.
In fact, the only time I felt the audience was engaged was when they were asked if they had invested in bitcoin. Luckily for them, I put my hand up during the question and answer session to engage the speaker in a one-sided discussion and used my experiences with Photochain to explain how blockchain works.
This got me thinking though, many people still don’t know anything about blockchain, other than that cryptocurrencies are (sometimes) a way to make money. However, as a real blockchain enthusiast, I want everyone to understand what blockchain really is, how it will benefit you, and how you can support its growth.
What are cryptocurrencies really about?
Firstly, I want to explain what cryptocurrencies are not. I touched upon this in a previous article but I want to elaborate on this message. Cryptocurrencies are not a tool to make money. They are not an investment asset in the same way that stocks and shares are. I’m not going to lie and say that you can’t make money by trading them, but (most) aren’t invented just to create value.
Cryptocurrencies (and tokens) are used as tools to access and make use of blockchains. Bitcoin for example was not designed to be an investment tool. It was created in the wake of the financial crisis as a way for the masses to transact money without the need for centralised organisations such as banks.
The Photon token is the key to access and use the Photochain platform, to make transactions on the platform and to reward users who moderate copyright claims. Another popular cryptocurrency right now, Ripple, enables cross-border payments to be settled at a near-instant rate. Currently international bank transfers can take several days, but the Ripple blockchain can bring this down to just a few seconds.
So what’s the difference between blockchain and cryptocurrency then? Aren’t they the same thing? Not quite.
Chains of blocks or blocks of chains?
Blockchain is the underlying technology that makes use of cryptocurrencies. You can think of blockchain as a record of things that tells you where each thing is at that time and where it came from.
The block part of the name comes from the fact that each individual movement of things (a transaction) is grouped into manageable amounts called blocks, which contain a finite number of simultaneous transactions. The chain comes from each completed block having another block placed on top of it when newer, more recent transactions are processed.
This means that the record always gives the correct picture of where each thing on that blockchain is. A thing can be anything, from financial value, to the ownership rights of a photo or a vote for a government party in an election.
Everyone who uses the blockchain has a real time updated copy of where all the things are at that time. This means that no centralised authority is needed to manage things. Think of a bank that manages how much money is in each account or a photostock business that mediates and takes a percentage of the profit for each photo sold.
From a security point of view, it is therefore practically impossible for anyone to manipulate the blockchain and add more things to their account. They need to be able to make this change on everyone’s individual copy of the blockchain in order to trick the whole network.
The block and chain aspect adds another layer of security. A cryptographic hash is needed to confirm each transaction as being true and correct. This is a super difficult algorithm that requires specific conditions to be met in order for it to be broken. Due to the difficulty of cracking this algorithm and that blocks are continuously placed on top of each other, it is practically impossible for hackers to reverse and manipulate completed transactions.
Blockchain’s can also be anonymous. If secured information is exchanged, such as identification documents, despite everyone being able to see that something has been exchanged, they won’t be see what the information was or who sent it to who.
This is blockchain in a nutshell. The advantages of such a system are numerous. The biggest advantage is decentralisation — no need for central authorities to control the transfer of things i.e. having control over the transfer of your own things. This itself brings the additional advantage of lower costs for transactions as middlemen no longer need a cut.
Other benefits are security and safety. Traditional, centralised systems have a single point of failure. A hack on Google for example only needs to exploit Google’s servers once. Blockchains on the other hand need everyone’s record of things to be changed simultaneously in order to be hacked. This is near impossible and I don’t expect anyone to ever be able to hack a blockchain.
Side note — I know you may have heard about hacks and stolen cryptocurrency in the news, but these are hacks on businesses and institutions in this industry, not of a blockchain itself. Unfortunately their own security wasn’t enough and their operations were hacked to divert funds to the hacker’s wallet. We must remember that every new industry has teething problems at first, and unfortunately this industry is no different.
So what can a blockchain do?
Blockchain’s can do many interesting things that are a massive improvement on current ways of doing. Bitcoin is a blockchain based way of making financial transactions.
Ethereum, is another blockchain. It has a wider range of uses than the bitcoin blockchain. As is in the case of Photochain, Ethereum has what is known as the Ethereum Virtual Machine. You can think of this as a computer that is shared by all the users on the blockchain. The beauty of such an invention is that it allows decentralised applications to be built on top of it, and these dApps are managed by smart contracts.
Other remarkable uses for blockchain include the development of a new internet, the power to combat one of the greatest challenges in human history — climate change — or, to provide more transparency and openness, as well as collaboration in governments.
Blockchain has some truly remarkable uses that have the potential to change the world. Blockchain will reinvent the way we transact financially with one another, how we communicate with one another and how we interact with institutions and governance better.
The one drawback for blockchain right now is that there is plenty of development required ahead. At this point in time, blockchains can’t talk to each very well, meaning that there is no easy system if you want to spend your bitcoin on other blockchains. However, solutions to these problems are underway and with your help we can reach an envisioned crypto economy.
So how can I help?
Blockchain is in its infancy and as a network technology, it needs the support of individuals and communities in order for it to be a success. Go out and understand what blockchains can do, join a project’s community, ask questions, sit and listen to other discussions.
Support your favourite projects with donations, and give them the capacity to develop these game changing ideas. Only with the help of society can blockchain truly flourish and together we can unlock the real potential of this wondrous technology.