- 30 September 2017
- Posted by: Danielle Donaldson
- Category: Technology
What is Blockchain Technology?: A Simple Explanation
To the average person, blockchain technology may be a term that you’ve heard thrown around more and more in the media, most commonly in relation to cryptocurrency such as bitcoin. In this article, we will attempt to explain what is blockchain technology in straight-forward, simple terms that you don’t need to be a computer expert to understand.
Blockchain is not just bitcoin. It’s the underlying technology that powers bitcoin. There are many applications to blockchain technology beyond its initial purpose which was cryptocurrency. Though bitcoin popularised the concept of blockchain, the potential uses for the technology are only starting to be explored.
So what is blockchain? Picture a literal chain of blocks. Now let’s get abstract. Each block is a record (or a collection of data), and they’re all linked together in a peer-to-peer network of “nodes” which are machines connected to the network. The entire network (or machine community) can autonomously verify the integrity and authenticity of a record via self-auditing. This means that public and verifiable data can be shared across a non-centralised network, transparently yet securely, protecting the integrity of information or other forms of data as it cannot be corrupted by retroactive alteration.
At its core, this technology allows for direct trading, with no middlemen (such as banks and organisations) required to guarantee transactions take place as they should or other platforms and intermediaries to facilitate trades. These transactions (whether they’re financial, informational, or the transfer of anything else of value) can be automatically verified by the entire network as it is logged in the blockchain with its own unique digital signature. You don’t have to place trust in the middlemen not to tamper with, delay, or charge you hidden fees for your transactions.
Blockchain was first conceptualised by Satoshi Nakamoto in 2008, as a core component in bitcoin, so it’s difficult to discuss blockchain technology without separating it from bitcoin. But potential uses for blockchain technology are also being explored for other forms of record-keeping, such as medical records, supply chains, and voting.
For example, blockchain technology could allow us to track a food supply chain (or any type of supply chain), granting us immediate status updates and other data including origination, processing, and storage details for food products. Being able to trace each step of the process allows for more accountability in the industry, as well as benefiting from a more efficient system with reduced costs. It’s an electronic ledger system that could potentially be industry-transforming, which is why so many people are investing in this technology now despite it still being in its infancy. And not just people, but companies too. VISA, Mastercard, Kodak, IMB and more are already investing resources into the research and development of blockchain technology.
“Smart contracts” or self-executing contracts, in particular, is by no means a new idea but big companies are exploring ways in which blockchain technology can assist in making them a reality. A blockchain-based smart contract allows for an agreed upon transaction to occur, whereby the terms of the contract are executed automatically whenever the contractual requirements have been met and authenticated. For example, a club DJ plays a track and the music royalties are instantly and automatically distributed to all those owed. It can enable the fair and simultaneous exchange of goods and money – or services and money. It all works on an “if this then that” premise.
Examples of blockchain real-world applications:
- Instant distribution of royalties for copyrighted music, images, etc.
- Non-centralised social networking in which the individual will own all their data.
- Decentralised online file storage that prevents files from being hacked, as the data is distributed across the network.
- Transparent, time-stamped supply chain auditing that can verify the backstories of products.
Is it safe?
Since bitcoin’s inception in 2008, there has yet to be a single security issue with blockchain technology. When you hear the headlines of hackers taking advantage of the global phenomenon, the problem lies with human error and businesses who don’t invest in good cyber-security or cyber-education rather than the blockchain technology itself. Blockchain as a foundational technology is pretty solid, as there is no central point in which hackers and crackers can exploit a vulnerability. Everything is encrypted and everything is shared, so you benefit from security and anonymity whilst also knowing that your data is safe and can’t be lost. What does that mean? “Can’t be lost”? People are always losing bitcoins! Though you could obviously lose your private key to access your bitcoin wallet, the same way that you could lose the password to an online account you own or even the key to your house, your online account and your house aren’t going to just disappear. They still exist online or on your street. The difference is that there are precautions in place to regain access to your online accounts and your house, through password reset systems or getting a locksmith around to essentially “hack” your house.
When there’s a way to get in, there’s a way to get hacked. The security of blockchain is much harsher, and relies more on the individual to ensure their own security. Once you lose your private key, that’s it. This is why you should be careful with whom you entrust your private key to, both people and companies, whilst making sure that you can’t lose it either. Some people make extra copies of their house key and, similarly, some people make extra copies of their bitcoin key. The vulnerabilities lie with the companies and the people. Education is how we keep people from making mistakes.
The future of blockchain
This is just the beginning. Blockchain is far from perfect and we are years away from it being implemented into our daily infrastructures. We expect that the model will be adopted by numerous industries over the next few years in one way or another, so keep your ears to the ground. It’s going to be interesting.