Blockchain is a technology that emerged in 2010 and has come to revolutionize the way the world exchanges money and information.
What is a Blockchain?
- By definition a blockchain is a growing list of records (called blocks), that are linked using cryptography (1)
Now this definition isn’t very useful so I can explain it in a better way: blockchain is a way to store transactions in something called “blocks”. These are mostly financial transactions in a sort of ledger like a bank would use to track transactions. This is used to track transactions without the need of a central authority like a bank to verify them. So in the end, blockchains are basically ways to store currency without using banks. You are your own bank! Using this technology we can also send any kind of data we want, it’s like an entire new internet run by the people using it.
Now, you may have heard of a very famous example of a blockchain: Bitcoin. Below we will discuss the history of where this idea and where Bitcoin came from.
Ok, but how does it REALLY work?
The information on the blockchain is called a transaction, which may not represent money or financial assets, but anything, such as works of art, properties or even a song. How is this transaction sent? Imagine several toy trains that have rails spread all over the world, forming a global network. All material that the trains are carrying is validated and duplicated by machines around the world to ensure security. If approved, it is sealed with another complex code (of letters and numbers) and connected to other trains. The train network has no owner and all transactions are made available in a book, which is available to everyone with access to the blockchain. All transactions on a blockchain are public.
Who makes sure these transactions are valid?
Some people on the network called “miners” are the ones processing these transactions by running special programs that also have the chance to create a new bitcoin. This process is expensive, as it requires the machines run at full speed 24/7. However, these people are paid for this work with units of the mined Token (like Bitcoin).
Is it safe?
Answer: YES.
Changing a transaction on the Blockchain is practically impossible. To change data on the blockchain, it means you would have to deceive the entire world’s network and break all the cryptography which is protecting the system. To do this, one would need a computer that is more powerful than all other computers in the blockchain combined. The blockchain network is growing every day, making it more secure as time passes. This means that hacking the blockchain itself is basically impossible.
How would a hack be performed on the blockchain?
Theoretically, the person would have to find the preferred block, decrypt and change the desired transaction. However, it is not possible to simply put the block back on the network, since the network would not recognize that blockchain as valid, as it is not identical to the one already authenticated. It would be necessary to rewrite all the old blocks for this new chain to be accepted and to finish, it should also send a new block valid for the entire network. In other words, win a round against all the computers on the network and move up the new chain. If you talk about stolen bitcoins or cryptocurrencies, it is because the crime occurred on the user’s equipment or on the software running on top of the blockchain — not on the blockchain itself. Think of the blockchain as the internet, and all exchanges, software, and websites running on blockchain as the apps we use every day. You can’t really hack the internet itself, and you can’t hack blockchain either for the same reason.
Where did the idea of a bitcoin come from?
Bitcoin was invented by Satoshi Nakamoto, which many think is a pseudonym for a group of people who worked on the Bitcoin project together which was launched in 2008. The concept of a blockchain is defined as: “a network that marks the timing of transactions, placing them in a continuous non-hash chain, forming a record that it cannot be changed without redoing all the work ”. I’m sure you’ve heard of Bitcoin because that same system is still running today. When Bitcoin launched, the price of 1 BTC was between $0.01 and $1 USD. The first real-world transaction of Bitcoin was 10,000 BTC for a pizza in Florida. This amount of BTC would be worth $572mil if it was held until the time of writing of this article.
Why is Blockchain Technology Important?
So as I said before, you are your own bank. The currency you can store in this bank, your digital “wallet”, is not dollars or whatever your currency is for your country. It is the special digital currency of that system. For the Bitcoin blockchain, it is called BTC (aka Bitcoin). In this case, the system itself and the currency on that system have the same name, but that is not true for all blockchains.
So besides acting as a bank what else do blockchains do? As I said above, we can send any type of data over these networks. This is done in something called Smart Contracts. Think of it as little pieces of code that everyone in the network can use. We’ll go into more detail about how these work in a different post.
Now Bitcoin isn’t the only blockchain, there are THOUSANDS of other blockchains out there at this moment. A lot of these blockchains are not great however, whether it’s in the idea, implementation, development or goals. Any blockchain needs to have an element of trust from the users which comes from the team developing the technology, the feasibility of the idea and the work being done on the blockchain. Right now, the blockchain space is a bit like the wild west: few regulations, lots of thieves and scammers, but potentially a lot of monetary gain.
But don’t worry about all that! I’ll be going into more detail about the other blockchains, smart contracts, and how to avoid crypto-related scams in future blog posts.
How will blockchain technology change the world?
A lot of utility and applications of blockchain haven’t even been conceived yet but blockchain is already being developed for use in the finance, real estate, healthcare, music streaming sectors.
Finance
Imagine transferring money safely to someone in another country, how long would the transaction take?
A couple of hours to say the least, if not the transaction fees are high, banks could easily take a couple of days to authorize and execute the transaction.
Lending and borrowing money is also unnecessarily convoluted, the borrowers integrity can’t be assured and there is an inherent third party required to reduce the risk but with blockchains and smart-contracts the need for third party to mitigate risk will be obsolete, lending and borrowing streamlined and instantaneous.
Healthcare
The Healthcare Industry also has a lot of problems, medical records are stolen and shared and it’s difficult to transfer records and require a lot of unnecessary paperwork. Blockchain solves this problem and ensures the security of medical records and easy portability.
Streaming and NFTs
If you are even remotely interested in the cryptoverse you might have heard the term ‘NFT’ these are basically digitized unique tokens of various commodities could be music, art, a tweet which can be bought,sold, traded. More about NFTs in another post, but blockchain is the heart of developing platforms and applications which allow for minting of NFTs and decentralized streaming.
Real Estate
Buying a house is a LOT of work, fraud and forgery is common in the housing sector, buying and selling houses also involves a lot of paperwork and research and this can also be solved using blockchain to keep a record of previous owners, sales and authenticity.
These are just a few examples of how blockchain could shape the future, it’s still early and a lot of things are speculative but blockchain seems promising and is trying to solve the problems which have needed a solution for far too long.
