Why Blockchain Technology Is The Future
Ever wondered how this whole Blockchain thing works? Well the blockchain actually existed in 2008 and since then it has been transforming the way we do certain transactions. Most people probably identify the blockchain as Bitcoins but they are two separate things. How I like to think of it is that the blockchain is the platform for which Bitcoin exists on.
Although it has been many years since it has become popular, it is still a confusing concept to others (even myself). So I thought I'd break it down to help the common person try and understand it by providing simple examples.
What is the Blockchain?
Think of the blockchain like database or an excel spreadsheet where it collects and stores all this information. Each row in an excel sheet is a "block" and with each subsequent "block" that is created, it is linked to the previous one to form a "chain". The storing of these transactions are also known as a "digital ledger" so that you can basically view the origination of the transaction.
I know you're probably wondering, how is this any different to using an excel spreadsheet and manually updating it? Well there are a few differences, but the major difference is that this digital ledger is shared and distributed across multiple computers (creating this decentralised system which we will cover further below). So anytime someone makes a new transaction and needs it to be recorded on the "spreadsheet" it will appear in everyone else's copy so that everyone else can verify if it legitimate or not.
This makes the platform extremely secure or "immutable" as the information is made available to everyone in the network but cannot by modified.
How does it work?
Using the spread sheet example, every "block" that gets created, will contain three main elements and these are:
- Data: The data depends on what it is being used for, like for Bitcoins, it will contain details about the transaction including the sender, receiver, number of coins, and so on.
- Hash: A hash in a blockchain is something like a fingerprint and is unique which is used to identify the block. So every time a block is created, it will generate a unique hash.
- Hash of previous block: This is the key to making it a blockchain because each block carries the information of the previous block, thus the chain becomes very secure and it becomes traceable.
What makes it so secure?
There are three main components to the Blockchain which makes it extremely secure:
- Unique identifiers (Hashing)
- Proof Of Work
- Decentralisation
Hashing
Each block will contain the previous block's hash so that it can be connected through a unique identifier. So if someone were to try and modify or hack into one of the blocks, it will generate a new hash and every single block which was created after that block will notice that there is something different. Hence the longer the blockchain, the harder it is to corrupt any of the data.
The diagram above is a very simplified version of how it works, the actual hash for each block is extremely long and complicated containing all sorts of numbers, special characters, letters, etc.
Proof of Work
Hashes alone won't be enough to make the whole blockchain incorruptible so another layer of security is through a system called a Proof-Of-Work (PoW). This is basically a mechanism which slows down the creation of any blocks so that if you try to tamper with a single block, it will become extremely difficult as you will need to interfere with every other block in the chain.
For Bitcoins, it takes about 10 minutes to calculate the required PoW before adding a new block to a chain. Bitcoins contains over hundreds of thousands of blocks, so trying to successfully manipulate the blockchain could take over 10 years.
Decentralisation
On top of hashing and PoW, the blockchain is made even more secure as it is distributed to every entity in the chain. This means that there isn't a single entity who controls or manages the blockchain and instead it is using a peer-to-peer (P2P) network, or otherwise known as a decentralised structure. In a public blockchain where anyone is allowed to join (e.g. Bitcoins), an individual in the network is called a validator or a node. Anytime someone joins the network, they will receive a full copy of the blockchain.
So when someone tries to create a block in the network, that new block will be sent to everyone. They will then verify that there hasn't been any tampering involved and if everything looks correct, then each node will add this new block into their own blockchain.
Because of how secure the system is, it creates a sense of trust in the data. Simply put, before a block can be added to the chain, a few things have to happen:
- A cryptographic puzzle must be solved to create the new block.
- The computer that solves the puzzle shares the solution with all the other computers in the network.
- Finally, all the computers involved in the network verify the proof-of-work. If 51 percent of the network testifies that the PoW was correct, the new block is added to the chain.
The future of blockchain
With all the above benefits that the blockchain can provide, we are already starting to see revolutionary applications of it around the world. A few applications where it is currently in place or would prove to be extremely beneficial to have blockchain are:
- Banking and Finance: Banks are extremely risk adverse and are considered to be a "secure" place to store your wealth. It only makes sense to implement an incorruptible platform to facilitate transactions especially larger sums.
- Currency: As we have already seen, cryptocurrencies are slowly being adopted and accepted as a new form of payment. Where each currency's value is governed by their respective central authority, cryptocurrencies are decentralised and remove the risk of the stability of the central authority.
- Smart Contracts: A smart contract is basically a set of codes that is built on the blockchain to facilitate, verify, or negotiate a contract agreement. As they operate based on a set of conditions to which users agree, it will be automatically carried out when those conditions are met. This not only makes it faster to execute as there is not intermediaries but it is also secure as you cannot modify the conditions.
- Healthcare: Your personal medical records are extremely confidential and would not want it to be shared. Hence health care providers would be able to leverage the blockchain to store the data in a more secure platform.
- Supply Chain: The IBM Food Trust is an excellent example of blockchain technology being implemented in the supply chain. It allows suppliers to record the origins of materials that they have purchased and the companies to verify the authenticity of not only their products but also common labels such as “Organic,” “Local,” and “Fair Trade.”
As you can see, there are plenty of reasons how the Blockchain technology will influence the way we do things in the future. From simple bank transfers to understanding where our food comes from. It will provide transparency to everything that we do and most of all a sense of security and trust in our day to day activities.
QOTB
"Innovation is the ability to see change as an opportunity - Not as a threat"
By Steve Jobs