What is Blockchain?
Cryptocurrencies are getting a lot of attention, but there’s just as much buzz around blockchain.
There’s a very good reason for this - cryptocurrency and blockchain are an essential duo. If the former is the good-looking, attention-grabbing lead singer; the latter is the musical prodigy who writes the songs and experiments with new ideas.
So, what is blockchain – and why does it matter?
The blockchain is a decentralised peer-to-peer ledger comprised of a series of continually updated, timestamped and cryptographically secured digital records.
Okay. What does that mean?
Blockchain is a database that allows the parties on either side of a transaction to connect directly without the need for a middleman or third party. The transactions are secured via mathematical codes (cryptography).
The blockchain is basically a network (or chain) of computers (or nodes) that contains a decentralised database of transactions that can be seen by everyone on the network (known as a digital ledger).
Every blockchain transaction is approved, verified and recorded on this digital ledger, but private details are scrambled in such a way that only the relevant parties can understand them.
This means that it’s very difficult to conduct fraudulent transactions, as you would have to make sure your transaction is added to the ledger successfully and accepted by all the computers in the chain.
Unlike the traditional financial system, nobody ‘owns’ the records, so nobody can interfere with them.
Blockchain ensures security, accountability, transparency and efficiency – all without interference from banks or governments. This is why it’s such a big deal.
But what does blockchain have to do with cryptocurrency?
Without blockchain, cryptocurrencies like Bitcoin wouldn’t exist. As a decentralised ledger, it allows every Bitcoin – or piece of Bitcoin – to be stored as an individual item attached to a unique ‘address’. Each address serves as an anonymised cryptographically secured key that shares some similarities with a conventional bank account.
Coins can’t be duplicated and records can’t be manipulated. It’s no wonder then that cryptocurrencies have earned a reputation for security and transparency – and it’s all because of blockchain.
So, what else does blockchain do?
While you can’t have cryptocurrency without blockchain, you can certainly have blockchain without cryptocurrency.
The technology confers many different advantages and is being applied in various contexts, including cyber security, charity, cloud computing, video gaming, supply chain management and intellectual property, such as music and entertainment.
Simply put, there are very few industries in which this technology can’t make a difference. If cryptocurrency is going to revolutionise money, blockchain could well revolutionise everything.
Blockchain is a complex, revolutionary machine connecting to the whole world – and there are many different cogs and gears that go into making it work. We’ll learn about them later, but, for now, that’s blockchain explained as simply as possible!
Blockchain in action
Now we’ve covered blockchain technology’s core concepts and its relationship with cryptocurrency. There was a lot of talk about ‘decentralisation’ and some nerdy stuff about transaction verification, but we only briefly delved into its other applications.
Why would we delve deeper? As we said before, there’s far more to blockchain than cryptocurrency and we felt we needed another lesson to explain why. As an effectively incorruptible ledger, it’s not susceptible to censorship or amendment and offers a high level of transparency.
These characteristics mean blockchain technology could well provide a means of making financial, political and institutional processes more efficient, innovative and accountable.
This is all in theory of course, as blockchain is yet to reach its full potential - which some doubt will ever happen. In fact, Forrester have predicted that 2018 might be a year of reckoning for blockchain, where the excitable rhetoric around the technology crashes into the brick wall of reality.
But is there truth to be found between the overzealous hype and the pessimistic doomsaying?
Let’s quickly recap some blockchain 101.
A short history of a long chain
The first major blockchain innovation was Bitcoin, which, well…you probably already know the score. Read about Bitcoin in our About dropdown menu.
The second innovation was a real lightbulb moment, where the people involved in the Bitcoin project understood that the underlying technology could be used for other forms of interorganisational and interpersonal cooperation.
The third - and arguably the most important - innovation was the “smart contract”. This is a computer protocol that self-executes agreements without the intervention of a third party. The blockchain’s transparency and security guarantees that these contracts are carried out.
As for the other innovations? Well, they’re being revealed every other day. The technology’s potential is immense and so far we’ve only seen glimpses of the possibilities.
Blockchain is often seen as a primarily financial phenomenon and its most indelible association is with cryptocurrencies.
Central banks have been testing blockchain technology for some time, with them exploring applications such as digital money, new payment systems and records management. JP Morgan CEO Jamie Dimon might not be a big believer in cryptocurrency, but his firm is very keen on blockchain - in October 2017, the company launched a new payment processing network in partnership with the Australia and New Zealand Banking Group and the Royal Bank of Canada.
October 2017 also saw the launch of Mastercard Blockchain, which allows banks and merchants to make transactions on the distributed ledger technology. No cryptocurrency is involved as all payments are made in the traditional local currency. It’s a secure and transparent way of completing and tracking transactions within the existing financial system.
Socially responsible causes
Blockchain does have uses beyond financial services; it can, for example, be applied to socially responsible causes.
In 2017, the United Nations’ World Food Program – with the help of Parity Technologies – sent cryptocurrency vouchers to 10,000 Syrian refugees. Thousands of hungry people who needed food were then able to purchase it, all of which was made possible by blockchain technology.
Blockchain is also being used to power charities - the transparency it affords and the lack of intermediaries involved means that donations are sent to their rightful destination.
Finally, Sony and IBM are working on a blockchain-based education platform that stores degrees, diplomas, tests and more within a centralised ledger, serving as a digital transcript and a means of validating academic achievement. As an anti-fraud measure, it can allow job interviews and other career-relevant assessments to be conducted with maximum transparency.
The future of blockchain
The best part? Blockchain’s potential remains largely untapped. More innovations are coming in the near future, such as how the technology’s unalterable foundations make it ideal for contract management in law and real estate.
Blockchain can also be used in supply chain management, as it can help businesses track item’s points of origin, processing data, batch numbers and general shipping details. It will even find uses in the creative industries, as it can guarantee copyright protection and strengthen anti-counterfeit measures. All these applications are very practical and admirable, but let’s be honest - some of the most interesting stuff about blockchain lies in the realm of the absurd. There’s a blockchain for turkeys! A blockchain for vegetables! A blockchain for firearms! A blockchain for one-night stands!
Overall, this broad range of applications is what will make sure the technology survives. The naysayers may gripe about vulnerability, corruptibility and fear of the unknown, but the truth is that blockchain technology does something that’s simultaneously really simple and incredibly versatile.