A blockchain is defined as the public ledger of all executed Bitcoin transactions. The blockchain keeps on growing; every block is added in chronological order. Every node (i.e. a computer that belongs and is connected to the Bitcoin network) receives its copy of the blockchain, and in turn, gets automatically downloaded once it gets connected to the network.
People may not be able to understand easily what blockchain is all about, but the concepts surrounding blockchain is quite simple to understand. Sure, it may not be as popular as the Internet, or as obvious innovation like the iPads and the iPhones of this world, but it’s as important as them.
With the blockchain technology, data can be distributed… but not copied. The information remains secure because no one can modify the details without all the others’ consent.
This concept is a promising technology, especially that there are various industries that can benefit from this huge breakthrough.
Who Created the Blockchain?
In 2008, a person (or a group of people, no one really has confirmed) under the pseudonym Satoshi Nakamoto created the bitcoin and its underlying technology known as the blockchain technology.
(‘Satoshi Nakamoto’ still remains unknown, regardless of the numerous attempts of trying to reveal the identity and “out” him – or them.)
Being a cryptography buff, Nakamoto unveiled his project that he had described as the newest electronic cash system – entirely peer to peer and doesn’t need a middleman or third party.
The blockchain was first found in the bitcoin’s original source code in 2009; that was the year when Nakamoto succeeded in “mining” the first bitcoins. After 2011, Nakamoto disappeared from everything bitcoin – papers, forums, and code contributions – but the developments never stopped. Issues were addressed, and improvements were made.
The bitcoin’s year was said to be 2013, as more websites acknowledged and accepted the currency. More bitcoin-related startups have been funded and the price kept surging, reaching $1108 per bitcoin come November.
Other cryptocurrencies have been developed in relation to the bitcoin e.g. Dogecoin and Litecoin but it hasn’t been as successful as the bitcoin.
As years passed, the interest in bitcoin may be going down, but the reverse is happening for the blockchain. Today, more industries are expressing interest in using the blockchain technology and are being implemented in not just the financial industry.
How different is ‘bitcoin’ from ‘blockchain’?
You often see them mentioned together as they are related to one another. To make things clear, how different is bitcoin from the blockchain technology?
The bitcoin is…
…a virtual currency. It’s a digital token that allows you to send money to someone as a payment for goods and/or services. To verify the legitimacy of transactions as well as process them in real time, a large network of computers work ‘around the clock. This factor eliminates the need for a middleman.
The computers, aside from monitoring transactions, also keep track of bitcoin balances. These balances are published online as a public shared ledger, also known as the blockchain.
…while the blockchain is…
…as previously mentioned a public ledger that contains all the information about the bitcoin. With this ledger, anyone can check their transaction statuses – whether their payments were sent or accepted.
The ledgers are updated every 10 minutes or so with a ‘block’ that contains the new information. The block will undergo inspection by the rest of the computers – once the information is verified as correct, then the existing details are considered updated.
The two terms – blockchain and bitcoin – are related as one came due to the existence of the other. Without the blockchain, the bitcoin wouldn’t have come to life, whereas the bitcoin wouldn’t be an accepted currency without the blockchain technology.
Why was the blockchain created?
The blockchain wasn’t invented on its own; it came with the presence of the bitcoin. This technology came about to protect the transactions related to the said virtual currency.
Companies often secure their information by building walls in order to protect their data. This process still ends up unsafe because there still are people skilled enough to infiltrate and penetrate this wall. And so, the blockchain technology is created and implemented.
Why does the Blockchain Technology Matter?
Every component has its task; hence the bitcoins won’t work without the blockchain. The blockchain is kept secure by the network computers’ processing power that is in charge of updating the records.
The network may be large and unmonitored, but that’s what adds to its safety and security. If someone attempts to manipulate the information found in the blockchain, then user transactions won’t continue processing, and the entire chain becomes ineffective.
The blockchain is created to provide security and stability to various financial transactions. Without this technology, certain information is accessible and could land in the wrong hands.
The blockchain technology helps prevent chances of fraud and mishandling and lessens the possibility of security breaches. This significantly reduces the chances of backdoor transactions happening – almost down to zero.
What are Blockchains Made Of?
The blockchains are made up of a network of ‘nodes’.
What is a node?
A node is a computer that’s connected to the network through a client that’s in charge of relaying and validating transactions. It’s the part of the blockchain that records either the partial or full data about recent transactions.
Every node receives a copy of the blockchain transactions, and details are downloaded immediately upon addition to the network. Once the downloading process has been completed, the block gets into the blockchain as a part of the permanent database.
Nodes, when combined, create a strong network as the blockchain technology. They are generated one after the other; as a block gets completed, another block is generated. They get linked to one another in a linear and chronological order.
How the Blockchain Technology Works
The blockchain is a distributed database. Multiple computers have multiple copies of the database, and the computers form their own network with a peer-to-peer connection. This network doesn’t have a centralized server or database; the database rather is within a decentralized network.
Whenever a transaction takes place, it is signed digitally through a public key cryptography. You can use public keys to sign and encrypt messages being sent; only the recipient can decrypt the message using a private key of their own. Public keys are also used to authenticate identities and transactions – they are used to confirm that blockchain transactions are indeed not altered.
To process the transaction, you have to be sure that the sender has the asset that will be transferred, and that it won’t be traded twice. The blockchain allows the validation of the ownership and transfer of assets.
To prevent double spending, the blockchain commands several nodes to approve the transaction and to have it processed. Validation is also difficult due to the computer power necessary to solve the cryptographic problems.
New blocks are also connected to the old blocks, which means it won’t be impossible to revert to old transactions. If there are new transactions, then the other nodes must be informed as well. This is to ensure that all nodes are in sync and won’t have any conflicts with one another.
The blockchain will be updated by reconciling distributed copies so that they all have the same information – this is known as the consensus process.
Characteristics of the Blockchain Technology
Get to know the blockchain technology better by checking out these characteristics. Find out what can the blockchains do, and how it can help every industry it’s involved in.
Strong and Durable
Like the Internet, blockchains have its own innate robustness. By storing similar blocks of information across the networks, the blockchain has evolved and so it can’t be controlled by any singular entity.
Case in point: the bitcoin. Since its invention in 2008, it hasn’t experienced any major disruption. Issues it had encountered involved human error and bad intentions, and don’t involve the underlying process itself.
Settlement times of international banking transactions can be time-consuming and can require days of processing. This “speed” is often the reason why banks upgrade their systems.
With blockchain, sending money can be done anywhere and can be received as soon as the network has processed the payment. Money transfers can happen instantly, saving time and money for everyone involved.
The data entered into the blockchain network is considered public; all the details are embedded within as a whole. You may have your own bitcoin address and anyone can see what it contains, but no one will have to know that it’s yours.
No information can be changed without letting the other parties know; it’s transparent enough that all the blocks must approve any requested changes after verifying its safety and legitimacy.
If you’re not too comfortable with the level of transparency, then there are alternative steps you can take, such as changing bitcoin addresses and not keeping all your coins in just one address. This gives you additional security and peace of mind.
Incorruptible and Immutable
Centralized databases can be corrupted and will need trust in third parties to maintain an accuracy of the information. Blockchain-based processes keep the ledger moving forward because of the constant stream of information updating new transactions.
It’ll be tough to change any information stored in the blockchain. Attempting to change even a bit of data will mean a lot of energy and computing power. Once the information is added, it’s considered permanent; manual interference won’t work.
It updates itself every ten minutes and is self-auditing. All information received within that ten-minute interval is tested and added upon verification.
There are different groups wherein blockchains are categorized: public, consortium and private.
Public blockchains are the open-source and fully decentralized blockchains. Anyone can send transactions and confirm that they are completed, anyone can read, and anyone can be a part of the consensus process i.e. deciding which blocks will be added to the current blockchain.
To ensure trust and legitimacy, this blockchain type relies on cryptographic proof. The system also helps ensure that double-spending won’t take place and that all transactions will be verified.
Public as it may seem, the users are still protected from the developers; there are tasks that even the developers won’t be able to do. Realistically speaking, it’ll be hard to admit that developers themselves have limited power over their applications, but this is implemented so that the public will trust them as well as the process.
Examples: Ethereum, Bitcoin
With consortium blockchains, the nodes in charge of the consensus process are selected beforehand. The decentralization degree is stronger as not all can access information stored inside the blockchain.
This is a ‘public-private’ blockchain – whoever gains the ability to read the blockchain is decided as well, whether it becomes a public blockchain or strictly limited to the participants.
Private blockchains’ processes are controlled by a single organization. Read permissions can either be public or determined earlier; write permissions, on the other hand, are limited to a group. Auditing, database management, and other related tasks are handled by a sole company, hence eliminating the need for public readability.
With a private blockchain, transactions are considered cheaper because only a few nodes have to function. They don’t have to be verified by thousands of laptops just for them to go through and to be added to the existing chain. Nodes are well-connected, and any faults and errors can easily be corrected through manual intervention.
Private blockchains are considerably faster; improvements are being worked on to finally have that “instant confirmation” for transactions, compared to the 2-hour usual turnaround time for bitcoins. For Example Multichain, Eris Industries
It may seem like private blockchains are better than public blockchains, but the latter still offers a lot of value and are more preferred because of what they provide: neutrality, freedom, and openness.
Each kind of blockchain has its own share of advantages and disadvantages; it’s up to you which kind fits your needs the most. There are cases where public blockchains are more ideal, while a little control is necessary for some which make private blockchains more suitable for them. So in a nutshell, the solution you require depends on what industry you’ll be using the technology for.
WHAT GOOD DOES THE BLOCKCHAIN TECHNOLOGY DO?
The blockchain is one of the most puzzling technologies to arrive in today’s market. As a technology that packs a lot of potentials, blockchain has attracted a lot of attention and is being studied further to see what else it can do.
Right now, there are a lot of benefits that blockchain is available to offer.
Users are empowered.
With the blockchain technology in place, the users can control every transaction they make. They are also assured that their information is kept safe and secure with every interaction that they do. This will encourage people to perform necessary transactions without being afraid that their personal details will be compromised.
Using cryptocurrencies together with their underlying technologies will make users feel more secure; these currencies can’t just be counterfeited or reversed indiscriminately by the sender. Users will be assured of their transactions and will be informed of their statuses.
Integrity with Processes
Because of blockchain technology, commands will be executed exactly as they are given. And so, processes no longer need a third party; peer-to-peer transactions no longer require a central authority. Any transactions will have minimal to no intervention from outside forces.
The blockchain acts like a large database of property rights; contracts can be set up to either add or remove third parties, reference external facts or be accomplished at a pre-agreed date or time with lower costs and time necessary.
The blockchain technology stores data across its network, and so has fewer risks regarding keeping data. As opposed to the usual username/password system, the blockchain technology uses encryption to protect its data.
Every transaction mode must be recorded and validated, making this technology a secure and reliable system.
More Trustworthy Transactions
The blockchain technology is ideal for those who wish to transact with people who don’t trust each other and thinks the one is about to cheat on him or her. Two people getting into contracts with one another can interact through a single ledger with shared data without the need for a central party.
Two people can trade bitcoins directly without needing to go to a bank through the blockchain, so they can also trade securities without having an agent or broker, or execute legal contracts without hiring the services of a legal intermediary.
Safer Safekeeping of Data
With the blockchain’s capability as a decentralized database, you can’t lose your data in just a single event. For example, a sole natural disaster can’t just wipe out your whole database and remove all your information.
Cyber attacks are also farfetched; the data stored in blockchains are protected by strong cryptography. The current bitcoin blockchain, as an example, has been running for about 7 years but the blockchain itself hasn’t experienced any breaches or any hack attempts. That’s how secure the technology is.
WHO GAINS FROM HAVING BLOCKCHAIN?
A lot of industries can utilize the blockchain technology and make use of its benefits. Who are these who can use blockchain and benefit from it?
Financial industries are definitely the pioneers in learning the ins and outs of the blockchain, especially in cryptocurrency transactions. Finance currently has the strongest use of the technology. Bitcoin, for one, is using blockchain as its fundamental technology.
Governments have also used blockchain technology to secure their transactions. The Estonian government, for one, has been using keyless signature infrastructures – a form of blockchain-based technology – to help in authenticating their data since 2013.
Blockchains can store in themselves huge amounts of data, and that includes contracts. It also creates a digital record in real time that verifies a transaction containing a particular data stating it happened at a certain time and in a particular order.
Because of blockchain, the transaction’s integrity will be hard to question. This is because of blockchain being immutable and highly resistant to hacks. Once the data has been entered to the blockchain, it can’t be hacked, altered or deleted.
Another revolutionary technology that opens up a lot of opportunities is 3D printing. It leads to mass customization and makes the manufacturing industry closer to users. Currently, makers still utilize centralized platforms for sales; in the process, they find it difficult to protect their creations’ intellectual properties.
With the blockchain technology, those who own data and rights can store them in the blockchain. Through this, they expand the limits of corporate manufacturing and at the same time protect their intellectual property. There will be an open market that enables both buyers and sellers to engage more easily in contracts.
Blockchain-based data that only a few people have access to can help secure and protect information related to health records. Digital signatures can also assist in regulating the records’ availability.
To add, a group of people such as doctors, hospitals, insurance companies and patients can be included in the overall blockchain data. Doing so can help prevent fraud in payments for healthcare.
Aside from the usual energy sources, other efficient ways are being discovered as means of providing power supply – these ways being solar power and home power generation. Electricity microgeneration is also starting to become a huge trend in producing power and is creating an energy market.
Blockchains allow the registration of both produced and consumed electricity in smart meters. In turn, the surplus energy can be used in a different location while giving the original producer credits or currency. If the microgenerator requires additional electricity, then the credits can be redeemed.
One of the main problems of governments everywhere is corruption. Blockchain technology can help eliminate this problem by promoting transparency. All information is accessed by the right people, and no changes can be made without letting the others know, preventing hidden transactions.
Once the data is linked to departments, data requested can be released real time, after both the departments and the citizen allow the sharing of data.
National security can easily be compromised by a lot of events such as unauthorized access or changes to major defense infrastructure e.g. network firmware and operating systems.
Most countries have their computer systems and defense infrastructure distributed in different locations. Through blockchain technology distributed in different data centers and implementing consensus-based access, countries can protect their hardware and network equipment from being attacked.
THE ABSENCE OF BLOCKCHAIN
Right now, not all industries have the blockchain technology in place. Because of this, it will be hard to compare the presence and absence of blockchain. All that can be proven right now is what will happen if the blockchain is present in every transaction.
There’s what you call the Evidence of Absence. The Evidence of Absence is something that suggests that something is not there or does not exist.
How does it apply to the blockchain technology? It can help prove that security breaches are not present in their networks.
With other sites, companies and applications, it’ll be impossible to show that you haven’t dealt with security breaches. This isn’t the companies’ faults, though, so you shouldn’t blame them.
The Bitcoin and the blockchain technology is an exception, however. The companies with bitcoins can exactly inform you that they haven’t lost any bitcoins for the past few days. How confident are they? They have cryptographic data in relation to this. If there are any attempts to mangle the information, the potential victim will be alerted.
Because of this feature, you’d get to hear every attempted breach. If a breach indeed gets through, it will be highly visible and you’d know all about it. This feature should be in every security professional; doing so will build trust in both ends and will assure everyone their details are always protected.
This is just one of those instances that perfectly illustrates the difference between the presence and the absence of blockchain. Once industries have learned to utilize its benefits, they will then realize the effects if it suddenly will go missing. For now, it’s all about research and development. Who knows what other wonders are waiting to be discovered?
Blockchain: Revolutionizing the World
First, what people had was the Internet. The Internet was a good innovation for collaborating, communicating and connecting online. It was an ideal tool for everything else… well, except for business.
With the Internet, you can both send and share information, but what you’ll be sending, is not an original but a copy. What about for assets? If someone sends you $100 online, it’s important to confirm that the sender indeed has it and the recipient doesn’t have it and that the sender won’t be using that same $100 anywhere else.
The above scenario explains why intermediaries are necessary to satisfy important roles – to perform tasks such as record-keeping and to establish the identities of two parties in a transaction.
With the blockchain, however, there’s an established digital medium for a platform where anyone can attain anything of value; other intangible yet essential things such as votes and identity can be managed, stored and moved privately and securely. Through cryptography, clever codes and mass consensus through networks, trust is established.
In the future, once blockchain has made its mark, it’ll change how people interact. It’ll be there if people wish to hail a cab like today’s Uber, search for information or to connect with loved ones like on Facebook. This technology has made its mark in various industries – trade, financial industries, intermediaries, technology firms – and has affected society in more ways than one.