The Brief Basics of Blockchain Technology

December 7, 2017 - 7 minutes read

Just a decade ago, blockchain was an obscure technology mostly associated with cryptocurrencies. You’d usually only hear about it in discussions between FinTech developers and crypto enthusiasts. Fast forward a few years, and blockchain has made its way out of San Francisco developer social circles and into the public spotlight. In fact, it seems that we’re going through a sort of blockchain renaissance; its applications seem to have no end.

Of course, that doesn’t change the fact that most people still don’t have a good grasp on what makes the mysterious technology so special. If you’re curious about blockchain, wondering how it could benefit your business, or thinking of implementing it yourself, then you can’t afford to skip reading this post. By the end, you’ll be surprising even blockchain developers with your wealth of wisdom on the subject.

Blockchain’s History With Bitcoin

Blockchain technology was originally conceived and implemented by Satoshi Nakamoto, the anonymous creator of bitcoin. Nakamoto first introduced blockchain and bitcoin in “Bitcoin: A Peer-to-Peer Electronic Cash System,” a paper published in 2008. The next year, Nakamoto released software and a network to trade bitcoin. Essentially, blockchain was developed as a way to record transactions of the flagship cryptocurrency.

Since then, blockchain and bitcoin have both exploded in popularity. Still, nobody knows who the person behind the alias “Satoshi Nakamoto” is. Or if it’s even just one person. Regardless, what they unleashed on the world is now forging a disruptive path through a plethora of industries.

Besides recording transactions for hundreds of cryptocurrencies, blockchain’s also being utilized in areas like mobile app development, logistics, education, and healthcare. By this point, you’re probably asking, “But why? Don’t we have other ways to record transactions?” Those are valid questions. To best answer them, we must dive into the technical and functional aspects of blockchain.

Breaking Down Blockchain

Let’s get the part that you’re probably dreading out of the way — what is blockchain, really? On a “nuts and bolts” level, blockchain is basically a distributed database that is used to maintain a growing list of transaction records. These records are known as blocks. When a number of transactions occur, a block is created to record this activity. The block also includes an encrypted signature at the end of its data. This signature records a timestamp and link (also known as a chain) to the previous block.

This mechanism is where blockchain gets its name. It’s also what affords blockchain so much versatility. On a functional level, blockchain works as a secure, decentralized digital ledger that is shared on a public or private peer-to-peer network. All members of the network have a copy of the blockchain that continuously updates with each new block. Before an unchangeable and permanent transaction is recorded, the majority of the network must verify that the transaction was valid.

No single participant has a central authority copy, and none of them can edit a block in everyone else’s copy. This is what makes blockchain so resilient to hacking. Even if a hacker somehow managed to change one block across the entire network, this would just cause a chain reaction — the hacker would have to fix the signatures of the blocks connected to the tampered block, then the blocks connected to those blocks, and so on.

Sounds pretty useful now, doesn’t it? The rest of the world is starting to agree.

The Main Benefit of Blockchain

Now that you know how it works, it’s probably easy to see why blockchain can be such a huge benefit to some and a bane to others. It virtually eliminates the need for a third party to be involved in a transaction. Traditionally, parties conducting business keep their own ledgers to account for transactions. When there is a discrepancy between accounts, the parties usually rely on a financial institution or government to mediate.

Since validated transactions cannot be altered in the blockchain, this transparent record is all that’s needed now to solve issues which often cost businesses exorbitant amounts of time and money. This impact can’t be understated. Blockchain is automating and expediting integral segments of business like auditing, regulatory compliance, and contract executions. The matter of trust has moved from people to technology. And as a result, it’s allowing businesses to interact in a more secure environment and create new revenue streams.

Securing the Future

Transparency Market Research forecasts the value of the global blockchain market to be worth $20 billion in 2024. McKinsey estimates that the technology will save businesses across various industries $60 billion in the next few years. Similarly, Accenture predicts that blockchain will cut banking infrastructure costs by 30%. By 2025, McKinsey believes that blockchain may pioneer the way towards a new banking system altogether!

Because it can record any transaction, blockchain’s potential is limitless. Any centralized platform that relies on value-based transactions could benefit from implementing blockchain. But besides monetary transactions, blockchain could prove to be pivotal in other unique situations.

Blockchain can be the way we securely store information like identities, credentials, and health records. It could also help solve problems with election voting and tax processes. And if those scenarios weren’t unorthodox enough for you, it’s already being used to track supplies for refugees, improve driverless cars, and turn quantum computing into a reality! The possibilities are endless, and many of the ways we’ll be using this technology in the future have not even been thought of yet. So now that you know a little more about blockchain, what will you do with it?

Tags: , , , , , , , , , , , , , , , , , , , , , , ,