Blockchain technology will change the way we live. Learn about what it is and how it works. It is at the core of cryptocurrency, but blockchain has applications that will enable new ways for us all to interact. This article offer a simple explanation of blockchain technology. After reading it you will have a better understanding of what it is and also some of the ways it can be applied to change our lives and the way we do business.
What is a Blockchain? Blockchain Explained
The easiest way to think of a blockchain is to think of a spreadsheet, or ledger, that is copied onto a network of computers. Each computer has an exact copy of the ledger. So the blockchain is actually a distributed ledger system. The blockchain network is decentralized. Unlike a bank that stores your records on their computers. A blockchain system stores the records on a network of computers that are now owned by any one party. So there is no central control! If one of the computers is hacked, the ledger remains safe on thousands of other computers on the network.
The diagram above nicely illustrates a simple blockchain. Each of the computers has a copy of the same ledger. Any changes need to be validated on each node in the network. This distributed network is theoretically safer than records being stored on one system.
KEY ELEMENTS OF BLOCKCHAINS
Since a distributed ledger system requires "consensus" of all copies in the system to make a change it makes counterfeiting almost impossible (except with a 51% attack on the network). The larger the network the safer the ledger. Blockchains have no central authority. They are decentralized!
Data is cryptographically stored & essentially immutable. This makes it HACKER resistant.
Although the data is cryptographically stored, the records can be read by anyone on the network. There is a common misconception that blockchains are ANONYMOUS. This is false! It is true that your identity is hidden using complex cryptography. However, the transactions are a public record. If you know someone's public key (concept explained in another article on BitsofKoin at https://www.bitsofkoin.com/post/storing-bitcoins-on-a-paper-wallet), then you can look up all their transactions that occurred using that public address. Even though the person’s actual identity is secure, you can still see all the transactions performed on their public address. This may be annoying for financial transactions, but for supply chain use, it will keep people honest.
Where will Blockchain Technology be used?
The first "Killer application" was Bitcoin. However, since blockchains allow for decentralized, global storing of information on distributed ledgers, they enable so called "trustless" interactions. What does that mean? It means you don't need to take someone's word for anything, the line of ownership is documented on the blockchain. This system is ideal for validating property deeds and digital identities. Since each entry on a blockchain is timestamped, you will actually be able to track the food you buy from the farm to the store in terms of where it came from and how long it stayed in each location. This will help consumers and will make us all safer. The potential applications are limitless. The impact of blockchain and cryptocurrency will likely be as great or greater than the Internet. Before Bitcoin there was not currency that could be transmitted over the Internet without going through a third party like a bank, PayPal or credit card. Using cryptocurrency, you don't need these third parties. This will save consumers and likely change the world of banking and finance. Stay tuned, the blockchain revolution is just starting!
WIRED had a respected blockchain researcher try to explain the technology to a range of people starting with a young child and advancing to an expert in the field. The video is very nice and worth the time to watch. Bettina Warburg does a great job.