Blockchain is one of those developments that people kind of know about but, when pressed, struggle to explain. If you’re one of those people, hopefully this article will help.
Basically, blockchain is a technology that can be associated with anything digital that has value – Bitcoins, medical records, personal identities, proof of ownership and so on.
For the purposes of this article, I’ll explain blockchain in terms of an online digital currency such as Bitcoin. Essentially a blockchain makes online currencies feasible and secure. It prevents an electronic currency from being duplicated and spent twice without the requirement of a central controlling body or server. This means that banks and other authorities can be bypassed, making blockchain Bitcoin transactions commission-free.
A blockchain system is comprised of a series of duplicate databases containing detailed records of all transactions conducted with the Bitcoins in circulation. Each participant in a blockchain system or network has their own copy of the complete database. All transactions in the database are in sequential blocks – a chain of blocks (or files) – that are locked in their original sequence of creation.
The clever part of this is that everyone in the system owns a live copy of the complete database, and all the databases are duplicated and connected in real time between all the people in a network – the internet for example – all of the time. Think of it as a massive live and highly complex completed jigsaw.,
If anyone at any point tries to change one of the databases of sequential blocks – e.g. tries to change a sequence of blocks, or remove a block – this set of blocks will no longer fit into the overall jigsaw. The flaw becomes immediately transparent and is broadcast across the rest of the system. The blockchain then ceases to recognise that particular database because it’s a piece that no longer fits the jigsaw.
Bitcoins are held in blocks that require a private cryptographically-created key to access the blocks you own. You can release the value of a block by passing over the ‘key’ – the code that relates to that transaction – to someone else in the network. Of course, small pieces of individual code are far easier and cheaper to make secure than hard currency or connections to third party systems like credit card or bank account systems.
A blockchain records every legitimate transaction in the sequence of blocks in the databases across the network. This recording of transactions is the current primary role of banks – which are effectively redundant in this system.
But the real power of the blockchain lies in the principle of its functionality which has an enormous range of potential applications. Because a blockchain can only be edited by someone having the correct keys, practically anything that requires the establishment of trust and the verification of identity is a fertile opportunity.
A blockchain doesn’t have to represent a unit of value like a Bitcoin. It could contain any form of digital information including other computer code. Applications could include fraud-proof voting systems, the protection of intellectual property rights on music or video (to limit usage), or the movement of medical records.
One commentator suggested that we should think of blockchain technology being the equivalent to the iPhone and Bitcoin being equivalent to one of the apps that might function on the phone. The potential is enormous.
I only pulled this article together because I was curious about what blockchain is and does. There is much more to it than described here but this, at least, has helped me get my head around it. Hopefully it has helped you too.
By Chris White.Back to all news