What is this blockchain we keep hearing so much about? Before I go into too many details, let’s look at a brief example:
Imagine a Google spreadsheet, one that every computer in the world shares and a spreadsheet that is connected to the internet. Each time something happens, a transaction, it will be recorded on a separate row on the spreadsheet.
Anyone who has a computer or a mobile device can log on to the internet and can see the spreadsheet. They can see every transaction that happens on the spreadsheet and they can add another transaction if they want. The only thing they cannot do is make any changes to the transactions that are already on there.
That is, in essence, the blockchain. Nice and easy, isn’t it? Where the spreadsheet has the rows, a blockchain has blocks. Each block is a collection of data and each bit of data is added by the connection of one block to the next and so on in chronological order, pretty much the same as a spreadsheet is made up rows that follow one another. These connected blocks make a chain.
Therefore, the blockchain is a global database, online, that anyone who has an internet connection can view and use. Because this database exists on the net, it is classed as decentralized – the ledger or database is shared between every computer in the world, not just stored in one specific location with limited access.
This is what makes cryptocurrencies like Bitcoin and Ethereum so unique.
Bitcoin and the Blockchain
The first application for the blockchain and perhaps the most famous is Bitcoin, a P2P digital currency. The Bitcoin is created through mining and is stored on the blockchain. Unlike the physical money we use today, Bitcoin can be sent to anyone and to anywhere without the need to go through a bank or a government or any other agency that might want to interfere and take their cut from you.
The blockchain really doesn’t care whether you are a machine, a human, even a dog. The security in the blockchain comes from the verification of each transaction by all the nodes, or computers, that are
on the blockchain network and that eliminates the need for all those expensive intermediaries.
How Does the Blockchain Work and Why Can’t Anyone Hack Into it?
We know what the blockchain is now so let’s look at how they work. I will stick with using Bitcoin for this because it is one of the easiest and better-known examples.
In the Bitcoin blockchain, there are a series of 1 MB blocks, each of which contains P2P transactions. The block is added to the chain every 10 minutes, following verification by the Bitcoin miner network and a consensus mechanism that is built-in to the system. Each of the entries within a block is fully secured using cryptographic math, making the transaction irreversible. The blocks in the chain have the following features:
Each one is time-stamped, with the date and time
Each one is decentralized and distributed – there are multiple copies of each block stored in multiple locations
Each one is transparent, which means anyone can see what is on it
When a transaction takes place on the Bitcoin blockchain, it is sent to a pool that contains transactions not yet verified. These transactions will then be grouped together in one block, every 10 minutes, and Bitcoin miners will then work at solving a computational Math problem, very difficult; when the problem is solved the transactions are verified and the block is added to the chain.
Because blocks are added regularly, it gets more difficult to reverse any transaction or to double-spend the Bitcoin used in a transaction. At the same time, the Bitcoin blockchain is used by many millions of users, each of which runs the ledger on their own computers – akin to having millions of copies of the Bitcoin ledger, right from the very first block ever mined.
These copies all contain the history of every block since Bitcoin started and this is what makes it so difficult to hack. If that weren’t enough, each of the transactions is fully secured with cryptographic math. If anyone were to attempt to change the ledger they would need to be able to hack into 51% of the network – that means having to hack 51% of the total computers on the network running that ledger at the same
time. This would require an amount of capital that is eye watering, not to mention the electric energy required and this is what makes it unlikely that anyone will ever hack the blockchain or attempt to tamper with it. Not only that, in a situation like this, the value of the Bitcoin would significantly plummet, making it unworthwhile to hold them.
Bitcoin is just one example of a blockchain but the blockchain can be implemented across any number of industries and used to solve various problems.
Why Does the Blockchain Matter?
The blockchain matters because it is a transparent and immutable records database and this is what ensures that no third-party is needed to get involved. Think about it with this example:
A farmer in Africa owns a nice piece of land but he has lost his copy of the agreement and the deed in a flood. Because of that, he can’t prove he owned that land. There was a digital copy of that agreement but that was stored on a government database and that too was destroyed What does he do? Had that deed and agreement been filed on a blockchain, he would have had no trouble verifying that he was the true owner of the land.
This is just one example of how the blockchain is useful. As well as verifying ownership, it will also help to protect your identity, avoid the situation of double-spending and may, in the future, even run autonomous vehicles.
The Future of The Blockchain
It really is no exaggeration when I say that the blockchain will, in the future, be an integral and important feature in our lives. The success or otherwise of cryptocurrencies like Bitcoin will have no bearing on the future of the blockchain because the blockchain is way bigger than any cryptocurrency, even Bitcoin. Some of the more notable moves in the blockchain ecosystem are:
In 2016, the technology attracted an investment of $1.4 billion
In 2016, the government in Dubai announced that, by 2020, all their supply chain will be on the blockchain
Ethereum has recently established the Ethereum Enterprise Alliance – EEA, while IBM is working on a new blockchain technology called Hyperledger
Over 50 of the biggest financial companies in the world are running experiments with the blockchain
When it’s all said and done, the only thing that will tell us just how disruptive this innovative technology is going to be is time.