Blockchain technology has become a tech-industry buzzword over the past few months and the buzzing is only going to get louder, as more and more companies announce their plans to get involved with it.
For those not involved it can be a hard subject to wrap your mind around as it’s fairly technical, but the core concept is actually quite simple.
What is Blockchain technology?
The purpose and scope of Blockchain have been put into words beautifully by Marc Andreessen:
“The practical consequence […is…] for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.”
Blockchain technology allows two people to exchange digital property without any risk of fraud, theft, third-party interference or the need for a middleman.
You will often see cryptocurrencies and blockchain used in the same breath, and this is because the vast majority of cryptocurrencies use a blockchain network to track the movements of their coins.
Check out our picks for the top 10 cryptocurrencies to watch in 2018.
How does blockchain technology work
The current widely used method of holding information is to keep a central, protected database. For example, do you know exactly how much money you have in your bank right this moment? Most of us would have to open up our banking app to check, and then the bank would tell us how much is in our account.
We are trusting the bank and its database. Now there are several checks and balances to make sure the bank doesn’t start lying to us, but the fact remains that the bank holds the information and we trust what it tells us.
Blockchain technology works on an entirely different principal.
Just as an example, let’s say I’d like to send you £100 using this blockchain technology.
When I send the transaction, the information (time/date, quantity, sender, recipient etc) is sent out to hundreds of different nodes that all have a copy of the central database. Each node updates their database with the transaction information independently of the others, and then communicates to all the other nodes to compare the updates they've received. The most popular version of the update becomes the official record as it’s supported by the most nodes.
If I try to deny the fact I sent you £100, the vast majority of nodes will disagree with my story, and my version of events will be ignored.
How are the transactions updated and protected?
You’ve probably heard of cryptocurrency mining before, and this is an integral part of the blockchain ecosystem.
Before transactions are confirmed they are entered into ‘blocks’, which are batches of data ready to be entered into the blockchain. This information is encrypted by a network of computers around the world, and then entered into the blockchain where the information within the block is checked for authenticity. The blockchain is a permanent, immutable ledger of all the transactions for that particular ecosystem.
The resources for the encryption come from the crypto currency miners.
They use their computer hardware, energy and time to solve extremely complicated maths problems that add a layer of encryption over the records for transactions. The miners are then rewarded with an amount of the cryptocurrency, or tokens, for their efforts.
This entire systems works from the principal of decentralisation, as there is no central hub for the information. It is relayed, stored, verified and encrypted by a pool of nodes all over the world which means that no one person holds the keys, everyone is keeping everyone else honest, and the concept of ‘trusting’ someone or something with your assets isn’t necessary any longer.
Now before we all start waving flags and talking about the revolution, this technology still has a way to go before it enters real mainstream use but that time might be closer than you think.
Several block chain projects that act as platforms such as Ethereum, Neo and Vechain are building partnerships with governments and the world’s largest companies alike, to support them in a wide variety of areas including everything from disaster recovery and supply chain logistics, to anti-counterfeit technology.
Is blockchain technology going to be the next big thing? No one knows for sure, but it’s certainly starting to make some pretty large waves.