Blockchain was invented, around a decade ago, to underpin Bitcoin, the original cryptocurrency. The decentralised, distributed-ledger technology is capable of so much more, though, and is now integral to countless other cryptos and digital platforms – and much more.
In the words of the father-and-son authors of Blockchain Revolution, Don and Alex Tapscott, blockchain is an “incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value”.
For many experts, blockchain, rather than Bitcoin and the crypto stampede it triggered, is the more exciting innovation crafted by Satoshi Nakamoto, the anonymous person (or persons) who published the famous white paper (Bitcoin: A peer-to-peer electronic cash system) in October 2008.
That is because blockchain technology, which laid the foundations on which most cryptos now operate, has the potential to transform numerous industries way outside the crypto sphere, including healthcare, finance, and housing, to name but three. Indeed, experts are queuing up to proclaim its potential to be as revolutionary as the internet.
The bitcoin white paper proposed an “electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”.
But, if money takes the form of a digital file, isn’t it possible to replicate it? No, not with the blockchain, a cryptographic ledger. The bitcoin blockchain secures the cryptocurrency by making it impossible for it to be counterfeited, hence why Satoshi Nakamoto’s crypto has triumphed where all earlier currencies with similar ambitions failed.
The white paper continued: “Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers”.
That is why blockchain technology is the heart and soul of cryptos and sets them apart from other digital or virtual currencies. In short, blockchain:
- decentralises data and allows information to be shared;
- builds trust in the data through a peer-to-peer verification network;
- allows people to interact with the data without the need for an administrator or intermediary by using cryptography.
How does blockchain work?
Blockchain technology securely stores data in batches – or blocks – that are linked, chainlike, together chronologically, thus forming a continuous line. Unlike the old ledger method, whereby a book or database would be used to store information, the blockchain was designed to be decentralised and distributed across a large network of computers. This clever decentralising of data limits the ability to tamper with the information, thus building trust in the system.
To add a block to the blockchain a complex cryptographic problem must be solved by a computer. That computer will then share the solution to all the other computers in the network, providing a so-called “proof-of-work”. If correct, the network will verify the proof-of-work and a block will be added to the chain. Through the combination of a tricky mathematic puzzle and the verification process trust in the blockchain is ensured.
Further, as the network effectively builds trust for the users, it is possible to interact with the blockchain data in real time, and there is no need for a middleman or other intermediaries. This trusted peer-to-peer interaction with data is a game-changing way of transacting between two parties.
Is there more than one blockchain?
Blockchain is a type of technology, and not a single network, meaning it can be implemented in many different ways. Some blockchains are completely public, and open for anyone to view, while others are visible only to a select group of authorised users. The latter group is used by banks, government agencies, and similar. There is a third type: a hybrid blockchain. This is a fusion of the two previously listed approaches, whereby some data is accessible to all with a fraction of it held back for the eyes of only a few.
While blockchain’s original purpose was to power Bitcoin, society is benefiting from its many applications, such as verifying the providence of diamonds, or tracking pork – so recalling contaminated food would be easier to do – or even paying your dentist.
With blockchain it is possible to imagine a world in which contracts are written in non-destructive code and securely stored in transparent, shared databases, where they are protected. Little wonder so many analysts predict with confidence that blockchain technology will replace the global banking system and transform a multitude of other industries.
Oliver is a multi-award-winning journalist, ghostwriter, media consultant and editor based in south-east London. He specialises in tech, business, sport and culture, has been by-lined in every English newspaper and regularly contributes to The Daily Telegraph, The Times, The Guardian, and The Financial Times Weekend Magazine. On Twitter he is @OliverPickup.