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Have you heard of blockchains?

18. January 2018, Editorial

Blockchains have the potential to trigger a similar revolution to that of the internet at the start of the 90s – but what is blockchain technology?

Thema:

Bitcoin
Miner
Revolution
virtual chain

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© Mike Rastiello

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© Duncan.co

A blockchain is a cryptographically organised digital database which is secured and stored by a network of computers. As the word “blockchain” suggests, it is all about a virtual chain of different lists of records, known as blocks. A blockchain is like a cash ledger into which transactions are entered. These can be viewed by anyone as every participant has access to a digital copy of the ledger. Once a page of the book has been completed, a block in the chain is full.

 

Note: technically speaking not every user has their own copy of the entire blockchain; participants known as miners generate them instead. Users have the opportunity to view the copies or make their own – but without mining do not actively make any contribution to the network.

Blockchains and Bitcoin?

Blockchains were invented in the 90s, with the first digital chain introduced in 2001. The innovation behind today’s digital blockchains lies in their monetisation, which gives miners an additional incentive to safeguard the network.

Bitcoin’s relationship with the blockchain concept is similar to that between the World Wide Web and the internet – a distinct application of technology, as opposed to the entire platform.

The concept itself was dreamt up for virtual currency Bitcoin, by a person who adopted the pseudonym Satoshi Nakamoto. Satoshi needed a shared and public file, to which only new entries could be added, without allowing existing records to be deleted or amended. To sum up: a blockchain is the theoretical and technical framework that supports Bitcoin and other cryptocurrencies.

How does a blockchain work?

The fundamental requirements for every blockchain are a network of users who are all linked to each other in some way and are charged with conducting some form of trust-based operations, and, on the other side, miners who compete with one another to create the next block. Applications include financial transactions, concluding insurance policies or re-zoning pieces of land. Usually, the services of a middleman – such as a banks or credit card providers in the case of monetary transfers – would be required for transactions like this. These middlemen slow down the transaction process, while at the same time demanding fees for their services, which make the exchange more expensive.

A blockchain removes the need for such intermediaries

The safeguards are built into the process by the technology itself or, to be more precise, the underlying mathematics. Transactions or information saved in a blockchain are by their very nature authentic and unchangeable, which is why they do not require anyone else to administer or officially certify them. Smart contracts with rules and functions programmed into them could replace conventional paper contracts. The overarching aim is to put the focus on the individuals involved in the transaction and allow direct communication between them.

What is so special about blockchains?

1. All of the stored data is encrypted.
Taken together this provides an effective defence against corruption and manipulation attempts. The entire network is self-legitimising.

 

2. Blockchains are also tamper-proof.
Each new block is linked to the preceding one and contains a record of its history in the form of a kind of cross total. Each block also contains a control total for the entire chain. This enables users to determine the precise sequence of the blocks without any ambiguity.

 

3. A blockchain is a distributed database.
Rather than being stored centrally, the data in a blockchain are spread across multiple locations. As a result, there is no one owner or single computer that hosts a gigantic database. Spreading out information in this way reduces the risk of manipulation. The situation could be endangered if a manipulator found a way to bring more than half of all the systems involved under their control.

And what does that mean in real life?

1. Blockchains have particularly strong potential to change the financial industry. As a result, research in this area is reaching fever pitch, since no-one wants to miss the boat and find themselves redundant overnight. America’s leading stock exchange, Nasdaq, is already experimenting with blockchain technology to manage bonds.

 

2. A blockchain-based music provider could take the form of a public, decentralised music store which would no longer need record deals, leaving artists to manage the rights to their own music and set out the conditions for using it. This would dramatically change the relationship between fans and artists. Fans could actively support artists and distribution of their music, and directly participate in their idols’ success.

 

3. Taking fresh meat as an example, a blockchain could be used to document every stage of a product’s journey from slaughter and processing to going on sale – tracking the data transparently and without risk of falsification.

 

4. A blockchain electoral system would not only be tamper-proof, but also anonymous and secure. It would enable voters to cast their ballot from home without having to go to polling stations. And there would be no risk of vote-counting errors.

 

5. At the end of 2014, Estonia introduced its e-residency programme that permits non-Estonians who have an internet connection to register in the country and start and run a business in the EU without the need to be physically present. Honduras is looking to set up a blockchain database for land rights to provide additional security for mortgages, contracts and resource rights.

Blockchains have the potential to trigger a similar revolution to that of the internet at the start of the 90s.

Looking back, there were no applications beyond websites and e-mail while it was still in its infancy. Today our cars, homes, devices and all of us as individuals are networked with each other. As a result it is difficult to say which direction blockchains will take, but potential is definitely there, and a number of possible future applications are already conceivable.

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