Crypto 101: What is Blockchain?
Getting your head around blockchain can be challenging at the beginning — it’s not surprising, it’s a whole new way of structuring how we exchange value and information.
You may have heard blockchain mentioned in relation to cryptocurrencies like Bitcoin or Ethereum, both of which have hit the news over the past few years for skyrocketing in value bringing early investors huge profits.
Away from the digital currency hype, understanding blockchain holds a great advantage to all of us in the future. Blockchain has been heralded as the future of technology, commerce, governments, and even civilization.
Being able to grasp the blockchain will not only leave you with a better idea of how to make money from financial technology, but will make sure you’re ideally positioned to take advantage of meteoric changes to come.
How does it work?
A blockchain is a cryptographically protected distributed ledger made up of blocks of data which are stored through a network of personal computers (referred to as nodes)
It is a decentralised peer-to- peer network — this means that any person can opt to join, and use their computer as a node.
Once you are on the network, you are able to see the distributed ledger showing all of the transactions on the network. This means that no one person or company is in control of, or owns the system. It also cuts out the middleman of a bank or governmental organisation.
A blockchain maintains a growing chronological list of all transactions stored in these blocks of data. Each block has a time stamp, a unique hash and the hash of the previous block — this is what connects the blocks as a chain.
What makes blockchain secure?
To get added to the ledger as a new block, a transaction must be approved by more than 50% of the nodes on the network. Once the transaction is validated by the network it generates its own unique hash. A hash is like a fingerprint — it is completely unique and very difficult to tamper with.
The data in the hash will vary depending on the type of blockchain it is — for example, a block on the Bitcoin blockchain would contain details of the buyer, the seller and the amount.
Although the details of the block can be seen on the ledger, they are cryptographically disguised — so no distinguishable personal details of the transaction can be identified by anyone other than the owner of the block.
The owner of the block has a private, cryptographically created key to access their block — this can be transferred to another person who would then ‘own’ the block. This ensures that only one person can own a single block at once and it cannot be copied or duplicated.
Each block contains its own hash, as well as the hash of the previous block, so if you tried to tamper with one hash, you would alter the hash of all previous and future blocks. This disrupts the hashes in the whole chain, and would be seen by the peer- to -peer network, and therefore not validated.
So in summary the benefits of blockchain are:
- It is decentralised with no company or person having the ability to control or manipulate
- It cuts out the need for a middleman. Data can be transferred from person to person without going through a centralised system- in this way it is accessible to all without a fee.
- It is highly secure and almost impossible to corrupt or replicate.
What can it be used for?
Now you understand the basis of blockchain you can begin to understand its utility and value in many different industries. Without a doubt its most famous use so far is in decentralised digital currencies such as Bitcoin — but this is just the tip of the iceberg in terms of its capabilities.
The blockchain can be used to store and exchange any kind of digital information or value — from currencies, to employment contracts, insurance and medical records, crowdfunding and postal services.
This is done through the use of ‘smart contracts’. As blockchain’s peer to peer network can be used to validate financial transactions, it can also be used to validate a whole host of other condition–based exchanges. This effectively means, that like in Bitcoin transactions, the value or confirmation will not be released until it’s validated by the majority of the network. The connected hash element also means that a contract cannot be tampered with or changed without affecting all other blocks.
What is the future for Blockchain?
It is a very interesting time for blockchain, and many believe the beginning of a fundamental change in the way that we store and exchange date. As it spreads further into the public consciousness, many governmental and private companies are starting to realise its seismic potential.
Some of the industries that are already sitting up and taking notice are:
Banking — Major banks are already working on blockchain technology to make their payments more efficient and secure.
Insurance — Blockchain is beginning to be used to verify many types of data in insurance contracts integrating real-world data within a smart contract
Energy Management — Traditionally energy has been highly centralised with users having to go through a public grid or private intermediary. Development has already begun on a system that would allow customers to buy and sell energy to each other peer-to- peer, making energy management more effective, environmentally and financially sustainable.
Financial inclusion — Around 2 billion people in the world cannot access financial services through the traditional banking system. Blockchain overcomes many of banking’s current limitations — it removes the middle-man as it doesn’t require the physical presence of a branch. It also cuts out the usual transaction fees and has the potential to tackle corruption — which is a significant barrier to development in poverty stricken countries.
Crowdfunding — Crowdfunding is an effective way of raising capital for start-ups and projects, unfortunately up until now it largely cuts out a lot of the developing world. The blockchain changes this by shifting the economics of crowdfunding — creating the possibility of free crowdfunding to any country without the same commercial pressure that traditional crowdfunding platforms have. We are creating the world’s first global free crowdfunding platform that will be accessible to any country.
Over the coming years we will see more and more uses for blockchain, and many believe that it ultimately replace many of our current systems. Whether you use it to trade digital currencies, manage your energy, or verify your identity, it seems like blockchain is set to become a part of all of our lives in the future.