Blockchain is a system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system. A blockchain is essentially a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. Each block in the chain contains a number of transactions, and every time a new transaction occurs on the blockchain, a record of that transaction is added to every participant’s ledger. The decentralized database managed by multiple participants is known as Distributed Ledger Technology (DLT).
Each block has its own unique identifier, a cryptographic “hash.” The hash not only protects the information within the block from anyone without the required code, but also protects the block’s place along the chain by identifying the block that came before it.
The original Blockchain is an open-source technology that offers an alternative to the traditional intermediary for transfers of the crypto-currency Bitcoin. The intermediary is replaced by the collective verification of the ecosystem offering a huge degree of traceability, security and speed. Some believe blockchain technology has the potential to change nearly every facet of our lives, far beyond crypto’s impact on our financial portfolios. Even crypto skeptics see the value in blockchain technology. The real jewel is blockchain. Blockchain is likely to have a lot more staying power than popular cryptocurrencies like Bitcoin.
Blockchain technology is broader than finance. It can be applied to any multi-step transaction where traceability and visibility are required. The supply chain is a notable use case where Blockchain can be leveraged to manage and sign contracts and audit product provenance. It could also be leveraged for votation platforms, titles and deed management – amongst other uses. As the digital and physical worlds converge, the practical applications of Blockchain will only grow.
The exponential and disruptive growth of Blockchain will come from the convergence of public and private Blockchains to an ecosystem where firms, customers and suppliers can collaborate in a secure, auditable and virtual way.
Does Blockchain have to be public?
Public blockchains also allow any user with the required computing power to participate in approving and recording transactions onto the blockchain as a node.
Saying that, Blockchain technology doesn’t have to exist only publicly. It can also exist privately – where nodes are simply points in a private network and the Blockchain acts similarly to a distributed ledger. Financial institutions specifically are under tremendous pressure to demonstrate regulatory compliance and many are now moving ahead with Blockchain implementations. Private blockchains maintain the security of any data stored within the database using the same encryption methods. Secure solutions like Blockchain can be a crucial building block to reduce compliance costs.
Is Blockchain really secure?
Blockchain technology achieves decentralized security and trust in several ways. To begin with, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. After a block has been added to the end of the blockchain, it is extremely difficult to go back and alter the contents of the block unless a majority of the network has reached a consensus to do so. That’s because each block contains its own hash, along with the hash of the block before it, as well as the previously mentioned time stamp. Hash codes are created by a mathematical function that turns digital information into a string of numbers and letters. If that information is edited in any way, then the hash code changes as well.
Let’s say that a hacker, who also runs a node on a blockchain network, wants to alter a blockchain and steal cryptocurrency from everyone else. If they were to alter their own single copy, it would no longer align with everyone else’s copy. When everyone else cross-references their copies against each other, they would see this one copy stand out, and that hacker’s version of the chain would be cast away as illegitimate.
So how does it work?
Using the bitcoin system as an example, here’s how Blockchain works:
- The purchase and sale of bitcoin is entered and transmitted to a network of powerful computers, known as nodes.
- This network of thousands of nodes around the world confirms the transaction using computer algorithms. This is known as bitcoin mining. The miner who first successfully completes a new block is rewarded with bitcoin for their work. These rewards are paid with a combination of newly minted bitcoin and network fees, which are passed on to the buyer and seller. The fees can rise or fall depending on the volume of transactions.
- After the purchase is cryptographically confirmed, the sale is added to a block on the distributed ledger. The majority of the network must then confirm the sale.
- The block is permanently chained to all previous blocks of bitcoin transactions, using a cryptographic fingerprint known as a hash, and the sale is process