By Natalie Lord
It’s intangible, almost invisible yet quietly runs an increasing proportion of our lives. So what is Blockchain and how much of our lives does it impact?
More than 10 years ago, Bitcoin founder Satoshi Nakamoto (a pseudonym) published a white paper that introduced the concept of a peer-to-peer electronic cash system he named Bitcoin. The Bitcoin blockchain launched a few months later at the start of 2009.
Blockchain seems like a technological quagmire for most of us, but the basic concept is a simple one. A key danger of cyberspace is the lack of security. We all have information on the internet that we don’t want to be accessed or copied or tampered with. This is where Blockchain comes in. Blockchain ensures, as much as is possible in the cyber environment, that a transaction will only be verified if the rules are followed. Its security works because it’s not only encrypted, but also because it’s decentralized.
But how does it work? Nakamoto’s white paper explains the fundamentals of “mining” data into a block. Once the data has been successfully collated, a time-stamped link (called a hash) chains the blocks together across a decentralized network of nodes that verify every transaction.
Further, Nakamoto introduced the concept of a proof-of-work (PoW) model in the white paper. The PoW creates a “trustless” consensus and solves the problem of double-spend, meaning that cryptocurrency can’t be spent more than once. Contrary to the immediate perception created by the name, a “trustless” system doesn’t mean protocol one can’t trust. Conversely, it means that because the blockchain verifies each transaction through PoW, that no trust is required between participants in a transaction.
So who is behind the PoW system? Perhaps not unlike Willy Wonka with his army of Umpa Lumpas in the film “Charlie and the Chocolate Factory,” Blockchain has a body of “miners”. It uses a P2P network of Bitcoin miners who generate PoW as they hash blocks together before verifying transactions that go into the ledger.
Everyone in the network can see the shared transaction ledger yet there is no single vulnerability point from which digital assets or records can be corrupted or hacked. Because of this decentralized trust there is also no sole organisation in control of the data and no third-parties acting as internet gatekeepers. The confidence created by blockchain’s distributed ledger technology has seen it incorporated into applications across every kind of digital transaction and record. Consequently, we are starting to see major industries subscribing to the blockchain awakening.
With every passing year a greater proportion of our lives are run on the internet and, inadvertently, by blockchain. We shop online, do out banking online, utilise apps that transfer information detailing our digital makeup. Blockchain is subtly behind it all, like the lining in a suit, recording every digital transaction, every exchange of services or goods, everything that happens, as it takes place. It then embeds that data into encrypted blocks that can never be altered and parks the blocks across a global network of distributed computers or “nodes”.
The uptake of blockchain is gaining momentum and its potential is immense. Companies like IBM and Microsoft are using their icloud infrastructure to build custom blockchains. Academic researchers are exploring blockchain applications for various projects ranging from medical and insurance records to digital identity. We’ve seen the rise of blockchain-based smart contracts which uses blockchain as a middleman to execute all manner of challenging business deals, legal agreements and automated data exchanges. Meanwhile countless start-ups are implementing the technology in every sphere imaginable from music sharing to diamond sales to global payments.
There are still a number of obstacles in the realms of regulation and legality to overcome, but the blockchain movement is unquestionably gathering pace and fast becoming a force to be reckoned with. In the future most of our digital lives might start to be run on a blockchain foundation without us even realising it, so now is a good time to wake up to the awakening.