Blockchain and Blockchain Technology, words that become more and more familiar to us because of usage in various media. However, what it actually is, is a mystery to those who are entirely new to this new digital revolution.
A Blockchain, the technology that is creating Bitcoin and other cryptocurrencies, is a shared digital ledger, or a continuously updated list of all transactions. This decentralized ledger keeps record of each single transaction that occurs across a fully distributed or peer-to-peer network, either public or private.
Blockchain is a secure way of online transactions. The decentralized ledger records transactions on thousands of computers spread all over the world. They do it in such a way that no transaction can be altered retrospectively. Each transaction has to be confirmed six times before it is final in the blockchain. This creates a high level of security.
The use of a blockchain confirms that each piece of a digital currency was spent only once. This solves the long time problem of double spending. Blockchain has been around for quite a long time already, but it was the Bitcoin Blockchain technology that first had solved that double spending issue. A real break through in technology. This is why Bitcoin is called the grandfather of cryptocurrencies.
The Blockchain database consists of two types of records: transactions and blocks.
Blocks contain batches of valid transactions that are hashed and encoded into a Merkle Tree *).
Each block contains the hash **) of the previous block in the chain, thus linking them together. The linked blocks form a chain: the blockchain. This process confirms the integrity of the previous block as well as the reliability and security of the blockchain. This is because it goes all the way back to the genesis block (the very first block in the blockchain). Each single block is uniquely linked to the next and the previous block.
Because data is being stored across the network the blockchain eliminates the risks that we see when data is stored in one central place. The network has no central points that are vulnerable to exploitation by computer hackers nor has it a central point of failure.
Blockchain security methods use public key cryptography, which means that it uses pairs of 2 keys: one that is public and one that is private and only known to the owner. By this both authentication and encryption are established. The public key is used to verify that the holder of the private key is sent a message/ transaction and the private key is to ensure that the encrypted message can only be decrypted by the owner of that private key. Simply put: the public key is encrypting messages and the private key is like a password to be able to read or open that message.
Every miner (also called ‘node’) in a decentralized system has a complete copy of the blockchain. There is no such thing as a centralized ‘official’ copy and all users are trusted equally. Every transaction is broadcast-ed to the network by use of software. Then the mining nodes validate the transactions and add them to the block they are creating. Once the block is completed the nodes broadcast the completed block to all other miners in the network.
Open or Private
There is a discussion going on whether or not the private systems creating blocks are actual blockchains or not. Those using them claim they are, those who work on public systems claim only these are true blockchains.
Private or permissioned systems are similar to corporate systems and do not support decentralized data verification. The Harvard Business Review defines blockchain as a distributed ledger or database open to anyone.
The major advantage to an open network that doesn’t work with permissions is that protection against bad actors is not required and no access control is required . This means that applications can be added to the edge of the network without the approval or trust of others, using the blockchain simply as a layer of transport. This openness allows researchers to examine real-time transaction data in a closed economic system.
The Impact of Blockchain on Society
Blockchain will transform business operating models. Think of medical records (no cover ups of medical screw ups, once reported that report is final), pharmacist administration, insurance administration and transactions that now require a notary. Government ledgers and registers on proprietary ownership of real estate and land. Can you see how many jobs will become redundant in the coming years/decades?
What about voting systems on the blockchain, so no election fraud can ever happen again?
Major applications that we already know of and that are getting increasing interest are of course Bitcoin (cryptocurrency) and Ethereum. More about these coins in the next episodes of this series.
You and Blockchain
It gets more and more obvious that those who don’t get involved with blockchain and cryptocurrencies will find themselves offside soon enough. Those who do get in now will be on the edge of something that will grow bigger than most of us can even begin to imagine.