A blockchain, originally block chain, is a growing list of records, called blocks, which are linked using cryptography. Blockchains which are readable by the public are widely used by cryptocurrencies. Private blockchains have been proposed for business use. Some marketing of blockchains has been called “snake oil”.
Even if you aren’t quite sure what Bitcoin is, you’ve most likely heard of it. It’s the “alternative” currency (known as cryptocurrency) that isn’t issued by a central bank or authority. But is actually created digitally by computer programs run by users. Why do Bitcoins have actual value? Put simply, it’s because all of its users agree that they do. In the same way that members of a society could theoretically agree that leaves or rocks could be used as a currency. Leaves or rocks would have value as long as people continued to use them in trade.
Bitcoins can be used to conduct online transactions without credit cards or checking account numbers. The system is relatively anonymous and costs almost nothing to use – and it works. The value of Bitcoins on the market is nearly $10 billion dollars and more than 100,000 businesses accept the currency. The entire system is based on a technology known as blockchain, which may revolutionize the Internet and the way we do business.
What Blockchain Does
Bitcoin and other cryptocurrencies are based on a groundbreaking method of maintaining online databases called blockchain, developed by an anonymous person or group known as Satoshi Nakamoto.
Imagine a standard Excel database that’s managed by one person or a shared database on a platform like Google Docs. The Excel spreadsheet is maintained and updated by one person who has control over all of the information, while the Google document is available to everyone who has access.
In the first case, the manager has to be completely trustworthy because the system has no transparency; in the second, all participants have to trust each other because anyone could make fake entries (or mistakes) that throw everything out of whack. Businesses, financial institutions, and almost all other organizations use very similar systems: centralized and opaque to nearly everyone involved.
Blockchain does things very differently because there’s no “master copy.” The spreadsheet is kept on hundreds, thousands or even millions of computers simultaneously; everyone participating in the system has a copy and the data is accessible to everyone.
No user can change the spreadsheet, though. All changes are made over the Internet by the network itself. All new data is validated, coded and broadcast to each user every ten minutes in a “block” of new information, encrypted so it can’t be tampered with, and validated by the system through references to the previous block. Much like a puzzle piece fits properly into a puzzle, the new data block seamlessly “fits” into a continuously updated chain of information. That’s where the name blockchain comes from.
This may sound like hocus-pocus, but the theory has been around for decades and its execution in modern cryptocurrency systems works flawlessly. No one “owns” it, it’s never been corrupted or broken, and since the “spreadsheet” exists in so many locations at the same time it can’t be altered by hackers.
The Future of Blockchain
Even if Bitcoin eventually disappears as a currency, the technology will most definitely live on. The world’s largest banks and investment firms are experimenting with blockchain. Samsung and IBM are working to develop a new blockchain system to form the backbone of a decentralized IoT (Internet of Things) network. Healthcare companies are looking at blockchain as a better way of sharing patient health data. The list goes on and on, and blockchain startups are being funded in nearly every major industry.
Some even believe that blockchain technology can be the foundation of a new Internet that is decentralized, transparent and allows true peer-to-peer exchanges of not only ideas but items of value. It’s not fantasy; even the journal of the International Monetary Fund is discussing the possibilities, foreseeing a future that includes an “Internet of Trust.”