What is Blockchain?

What is Blockchain?

A non-centralized, distributed database

Imagine a document that is replicated multiple times across a network of computers rather than living on a single server. Now imagine that this network is designed to regularly update this document on a regular basis (about once every 10 minutes) and you have a basic understanding of the blockchain. Some of you might remember Napster where files were kept on different peer computers rather than a central location such as iTunes (although iTunes has their stores replicated around the world but there wasn’t a single server or datacenter containing all of the files.

Blockchain exists as a shared, constantly updated database that isn’t stored in a single location. The blockchain database isn’t stored in any central location, meaning the records it keeps are truly public and easily verifiable and harder to destroy, hack, or corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet, it is reminiscent of Star Trek’s fictional Borg.


Blockchain for use in Office docs

Normally people would send a Microsoft Word document to a colleague or colleagues and ask them to make revisions to it. If multiple people make changes at the same time then someone is left with “merging” all of the changes. Placing the document on a centralized server eliminates the “reconciliation” issue but you are locked out of editing it until the other person is done making changes.

Databases are designed so two or more people can’t modify a record at the same time. This is great for data integrity however it makes it difficult for collaboration. Imagine a contracts department with several people trying to work on the same document at the same time. This is where blockchain can come in handy.

Blockchain is Robust

Since blockchain technology is spread across multiple devices, it has:

  • No single point of failure
  • Not controlled by any single organization
  • Has operated since 2008 without significant disruption
  • Very secure

Incorruptible

The blockchain network automatically audits itself every ten minutes to ensure that parts of it haven’t been destroyed or corrupted.

Blockchain is made up of “nodes”

A node is either a redistribution point or a communication endpoint.

With blockchain, each node is an “administrator” and joins the network on its own accord (Thus the network is decentralized). However, when a node joins the network it is incentivized to win Bitcoins.

Nodes are said to be “mining” Bitcoin, but the term is something of a misnomer. In fact, each one is competing to win Bitcoins by solving puzzles. Bitcoin (the most widely recognized application of blockchain) was the prime motivator as to why blockchain was originally created.

As of 10 April 2018 is over 1565 estimated Bitcoin-like cryptocurrencies already available.

The concept of decentralization

By design, the blockchain is a decentralized technology.

Anything that happens on it is a function of the network as a whole. Some important implications stem from this. By creating a new way to verify transactions, aspects of traditional commerce could become unnecessary. Stock market trades become almost simultaneous on the blockchain, for instance – or it could make types of record keeping, like a land registry, fully public. And decentralization is already a reality.

A global network of computers uses blockchain technology to jointly manage the database that records Bitcoin transactions. That is, Bitcoin is managed by its network, and not any one central authority. Decentralization means the network operates on a user-to-user (or peer-to-peer) basis. The forms of mass collaboration this makes possible are just beginning to be investigated.

Who will use the blockchain?

Fortunately, you don’t need to learn about the blockchain for it to be useful.

Forbes recently wrote an article that presented the following uses:

  • Dealing with the Syrian Refugee Crisis
  • Creating financial avenues for the world’s most impoverished people
  • Preventing voter fraud
  • Improving Government Efficiency (public benefits, healthcare and education

In April 2018, The Motley Fool published 20 Real-World Uses for Blockchain Technology that included:

  • Payment processing and money transfers
  • Copyright and royalty protection
  • Tax regulation and compliance
  • Real estate, land, and auto title transfers
  • Securing access to belongings

Smart contracts

A smart contact is a computer protocol intended to be partially or fully self-executing, self-enforcing, or both. Parties paid as parts of the contract are fulfilled (for instance an employee could be reimbursed for travel using their personal car once he/she arrives at desired destination (say the hotel for a conference) and would then be reimbursed after they arrive home. The concept behind smart contracts is to lower the cost of contract execution.

At the technology’s current level of development, smart contracts can be programmed to perform simple functions. For instance, a derivative could be paid out when a financial instrument meets a certain benchmark, with the use of blockchain technology and Bitcoin enabling the payout to be automated.

The Sharing Economy

Blockchain eliminates the need for people to use Etsy, eBay, Lyft or Uber, and Airbnb. By allowing peer-to-peer payments, the blockchain opens the door to direct interaction between parties and eliminating the need for third parties.

Crowdfunding

Blockchains can also take the place of Kickstarter and Gofundme and eliminate the need for a middleman.

Governance

By making the results fully transparent and publicly accessible, distributed database technology could bring full transparency to elections or any other kind of poll taking. Ethereum-based smart contracts help to automate the process.

File storage

There are definite benefits to a decentralized Internet-based file storage. Distributing data throughout the network protects files from getting hacked or lost, as with the more traditional cloud-based solutions.

Protecting intellectual property

As is well known, digital information can be infinitely reproduced — and distributed widely — thanks to the internet. This has given web users globally a goldmine of free content. However, copyright holders have not been so lucky, losing control over their intellectual property and suffering financially as a consequence. Smart contracts can protect copyright and automate the sale of creative works online, eliminating the risk of file copying and redistribution.

Mycelia uses the blockchain to create a peer-to-peer music distribution system. Founded by the UK singer-songwriter Imogen Heap, Mycelia enables musicians to sell songs directly to audiences, as well as license samples to producers and divvy up royalties to songwriters and musicians — all of these functions being automated by smart contracts. The capacity of blockchains to issue payments in fractional cryptocurrency amounts (micropayments) suggests this use case for the blockchain has a strong chance of success.

Identity management

There is a clear need for better identity management on the web. The ability to verify your identity is the lynchpin of financial transactions that happen online. However, remedies for the security risks that come with web commerce are imperfect at best. Distributed ledgers offer enhanced methods for proving who you are, along with the possibility to digitize personal documents. Having a secure identity will also be important for online interactions — for instance, in the sharing economy. A good reputation, after all, is the most important condition for conducting transactions online.

AML and KYC

Know your customer (KYC) and anti-money laundering (AML) practices have a strong potential for being adapted to the blockchain. Financial institutions currently perform labor-intensive multi-step processes for each new client. KYC costs could be reduced through cross-institution client verification and at the same time increase monitoring and analysis effectiveness.

Data management

The Enigma project is an effort undertaken by MIT (Massachusetts Institute of Technology) is a “permissionless peer-to-peer network that allows (secret contracts) with strong correctness and privacy guarantees.” The core of the Enigma network is the ability to perform private computations in a scalable environment using blockchain technology.

Land title registration

As Publicly-accessible ledgers, blockchains can make all kinds of record-keeping more efficient. Property titles are a case in point. They tend to be susceptible to fraud, as well as costly and labor intensive to administer.

Stock trading

Share settlement efficiency makes a strong use case for blockchains in trading stock. Currently, it can take up to three days for stock trades to clear, while with blockchain technology peer-to-peer trades and be completed almost instantaneous. This could be bad news for third-parties for auditors, the clearinghouse, and custodians.


By original file: Theymos from Bitcoin wikivectorization: Own work – Bitcoin Wiki: https://en.bitcoin.it/wiki/File:Blockchain.png, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=16043262

Blockchain formation. The main chain (black) consists of the longest series of blocks from the genesis block (green) to the current block. Orphan blocks (purple) exist outside of the main chain.


Check Also

5 Ways That Technology is Disrupting the Executive Suite

5 Ways That Technology is Disrupting the Executive Suite

Take a second to imagine what would happen if the internet went down in your …