What is Blockchain
What is Blockchain?
Many people think of block chain as the technology that powers Bitcoin and while this was its original purpose, blockchain is capable of so much more.
Despite the sound of the word. There’s not just one block chain. Blockchain is shorthand for a whole suite of distributed ledger technologies that can be programmed to record and track anything of value from financial transactions to medical records or even land titles.
What is so special about Blockchain?
You might be thinking we already have processes in place to track data. What’s so special about block chain? Let’s break down the reasons why blockchain technology stands to revolutionize the way we interact with each other.
The way Blockchain tracks and stores data
Blockchain stores information in batches called blocks that are linked together in a chronological fashion to form a continuous line, metaphorically a chain of blocks.
If you make a change to the information recorded in a particular block, you don’t rewrite it. Instead, the change is stored in a new block showing that exchange to at a particular date and time. Sound familiar? That’s because Block Chain is based on the centuries old method of the general financial ledger.
It’s a non-destructive way to track data changes over time
Here’s one example. Let’s say there was a dispute between Ann and her brother Steve over who owns a piece of land that’s been in the family for years because blockchain technology uses the ledger method.
Unlike the age old ledger method, originally a book than a database file stored on a single system, blockchain was designed to be decentralized and distributed across a large network of computers. This decentralizing of information reduces the ability for data tampering and brings us to the second factor that makes block chain unique.
Blockchain can be trusted
Before a block can be added to the chain a few things have to happen. First, a cryptographic puzzle must be solved, thus creating the block. The computer that solves the puzzle shares the solution to all of the other computers on the network. This is called proof of work. The network will then verify this proof of work and if correct, the block will be added to the chain.
The combination of these complex math puzzles and verification by many computers ensures that we can trust each and every block on the chain because the network does the trust building for us. We now have the opportunity to interact directly with our data in real time. And that brings us to the third reason block chain technology is such a game changer.
Blockchain removes intermediaries
Currently, when doing business with one another, we don’t show the other person our financial or business records. Instead, we rely on trusted intermediaries such as a bank or lawyer to view our records and keep that information confidential. These intermediaries build trust between the parties and are able to verify. This approach limits exposure and risk, but also adds another step to the exchange, which means more time and money spent.
If information was stored in a block chain, it cuts out all the middlemen. All Blocks added to the chain have been verified to be true and can’t be tampered with so save considerable time and money. This type of trusted peer to peer interaction with our data can revolutionize the way we access, verify and transact with one another.
Blockchain can be implemented in many different ways
Because blockchain is a type of technology and not a single network, it can be implemented in many different ways. Some blockchains can be completely public and open to everyone to view and access. Others can be closed to a select group of authorized users, such as your company, a group of banks or government agencies.
And there are hybrid public private block chains, too. In some of those with private access can see all the data, while the public can see only selections in others. Everyone can see all the data, but only some people have access to add new data. A government, for example, could use a hybrid system to record the boundaries of property and ownership details while keeping personal information private. Or it could allow everyone to view property records but reserved to itself the exclusive right to update them.
It is the combination of all these factors decentralizing of the data, building trust in the data and allowing us to interact directly with one another. that makes Blockchain so unique.
Much like the rise of the Internet, this technology will bring with it all kinds of complex policy questions around governance, international law, security and economics. Here at Sophisticated Investor Magazine, we seek to bring trusted research that will equip policymakers with the information they need to advance block chain innovations enabling economies to flourish in this new digital economy.