What you need to know about Blockchain
Information & Communications Technology and Media | 06 Oct 2019
What is Blockchain?
Many know it as the technology behind Bitcoin, but blockchain’s potential uses extends beyond digital currencies. Its admirers include Bill Gates and Richard Branson, banks, insurers, and even governments, who are clamouring to work out how to use it.
A blockchain provides a time-stamped record of transactions performed across a network without the need of an intermediary, such as a central bank. The record of data is managed by cluster of computers not owned by any single or centralised entity. These blocks of data are bound to each other using cryptographic principles and added as part of the chain, in theory, forming an unchangeable record of data. It is a concept that brings together economics and digital technologies in a way never before conceived (link).
A blockchain is a simple way of passing information in an automated and safe way. A party to a transaction initiates the process by creating a block. This block is verified by a network of thousands or millions of computers distributed around the net (miners). The network is essentially a chain of computers, e.g. mining farms, that must all approve an exchange before it can be verified and recorded, keeping exchanges secure (link). The verified block is added to a chain, which is stored across the net, creating a unique record with a unique history (see picture).
Fig 1 (Image credit: from https://www.weforum.org/agenda/2016/06/blockchain-explained-simply/)
As blockchain allows consumers and suppliers to connect directly, removing the need for a third party, it is a decentralized database, or “digital ledger”, of transactions that everyone on the network can see (link). Since it is a shared and immutable ledger, the information is open for anyone and everyone on the network to see. Anything built on the blockchain is by nature transparent and everyone involved is accountable for their actions. Built into blockchain fundamentals is proof-of-work. Falsifying a single record would mean trying to falsify the entire chain in millions of instances as blocks are constantly added. See below for a simplified explanation.
Blockchain enables not just new means to deliver financial services and support cryptocurrencies, but it provides the potential to reshape and redefine government, legal services, accounting, insurance, supply chains, and energy distribution.
In the next 2 posts, we will be looking at the limitations and challenges of blockchain, and its possibilities and trends.
Explanation adapted from: Leng, HL (2018). Decrypted: A Financial Trader’s Take on Cryptocurrency