Whether you have any interest in Web3 technologies or not, you must have heard of ‘blockchain’ by now. Blockchain is a revolutionary technology that is changing, or at least has the potential to change, just about every aspect of our digital and physical lives. In this quick guide, we take a look at what blockchain is, how it works, what its applications are (and could be in future), and ask the all important question: will blockchain change the world?
What is blockchain?
Blockchain is a system of data, operating as a sort of digital ledger, that is essentially duplicated and shared among a network of independent distributed parties. There are several different blockchains (ones you’ve likely heard of include Bitcoin and Ethereum) that have different underlying technologies and applications, but what they all have in common is the fact that it is extremely difficult to change their data or otherwise hack their systems.
Blockchains can be public, permissioned, or private.
- A public blockchain (like Bitcoin) has tokens and anybody can participate; individuals can access, view, and add to the data on the blockchain at any time.
- Private blockchains, at the other end of the spectrum, are highly controlled networks without tokens where only a relatively small number of trusted individuals can participate. This type of blockchain might be used in a bank, for example, where very sensitive information needs to be shared on a need-to-know basis.
- Finally, permissioned blockchains exist somewhere in the middle. They are still large distributed networks like public blockchains, but the participant roles are defined in a more restricted way, meaning that not all users will be able to access, view, and add to the data on the blockchain.
What is an example of blockchain?
As mentioned, Bitcoin and Ethereum are two of the most well-known blockchains. Many others exist, however. These include:
- IBM Blockchain (one of the original players that now offers blockchain-as-a-service for other users, who pay to access the technology).
- Stellar (a game changing blockchain for the global payments and remittances space, which offers a fast and cheap way to move value between currencies).
- Tezos (this uniquely self-amending and self-governing blockchain provides robust proof of stake mechanisms and can also be used to eliminate middle parties in banking and other applications).
- MultiChain (this is an open source version of the Bitcoin blockchain that has enhancements principally for commercial use).
- Quorum (originally built by JP Morgan and now owned by ConsenSys, this blockchain is designed for high value and high speed events, and can handle thousands of transactions every second).
How does blockchain work?
Blockchain is immensely sophisticated technology, but it can be helpful to imagine blockchain a bit like a giant spreadsheet. Imagine a cell in that spreadsheet – in blockchain terms, this is a ‘block’. Each block represents about 1MB of data and the blocks collectively record data as determined by the purpose of the blockchain. If we take Bitcoin as an example, each block stores transaction data from every single transaction ever made on the Bitcoin blockchain.
Each time a block’s ‘memory’ is used up by transaction data, a new block stores the subsequent data. The thing that keeps these blocks in order (thus the thing that allows us to track transaction history) is a ‘hash’.
A hash is a unique key that links two blocks together. With all these blocks linked together, if someone attempts to change the data in one of the blocks, another hash will be generated, and that new hash will not then match the original hash. Seeing this, the other blocks will delink from the block that someone tried to change. When this happens, the chain is ‘broken’ and the network is alerted to this fact.
Because the blockchain is supposed to be immutable (i.e. you’re not supposed to be able to change it), the other blockchain participants override this attempted change and restore the old data. It is through this mechanism that hacking is made extremely difficult. All the blocks are linked together with particular hashes, so if one were to try to change the information in a block, necessarily all other blocks would have to change, and this is something that would then require a new set of hashes (like a new signature) for every single block that came after it. You can see why this is next to impossible with a completely decentralized network.
What is blockchain used for?
The most encouraging thing about blockchain technology is how many applications it has, and in how many areas of our lives both on and offline we might see that technology in action. By now, you’re probably getting familiar with how blockchain supports cryptocurrencies, so let’s take a look at some other promising areas where blockchain can increase efficiency, transparency, and security of everyday events and activities:
- Payment processing: This area has enormous potential, and progress here is already well underway. Blockchain technology means we can remove banks and other financial intermediaries that make money transfers slow and expensive, especially internationally. Blockchain can handle thousands upon thousands of transactions for as much as one international wire costs currently, and it can do it in a matter of seconds, not days.
- Digital identity: Everyone knows how frustrating it is to lose your passport or driver’s license, so now imagine how prohibitive it is to be one of the estimated one billion people around the world who struggle even to prove their own identities in the first place, making securing and using financial, government, and other services next to impossible. Blockchain’s cost efficiency and inherent security make it a great means of allocating and proving digital identities for each person in real life.
- Intellectual property: In using blockchain as a record for intellectual property rights, creators like authors, musicians, and artists can not only protect their assets in a stronger way than they do now, but they can also track licensing in real time and ensure they get paid appropriately for distributing their work. Undoubtedly, this will help overcome many of the problems creators have with current platforms (excessive commissions, lack of security, etc.).
- Title transfers: Selling high value assets like real estate and vehicles involves the transfer of title, meaning the changing of the owner on the official ownership records for that particular asset. This process, while very common, is fraught with difficulties, not least because having proof of ownership of such a valuable asset on a physical piece of paper is risky, not to mention considerably outdated. With blockchain, this important ownership information can be stored digitally and be subject to continual verification to ensure no scams or other malfeasances occur on the title.
- Tax compliance: Ever noticed how government agencies ask YOU to provide information about what you’ve earned in the year, and don’t simply send you a bill based on what they already know about you? This inevitably means that dishonest people get away with evading tax (which costs around $1 trillion in the United States alone annually). If companies keep their transactions on the blockchain, these amounts can be categorized into sales, expenses, and so on, and companies can then share the data with the relevant tax authority to show they are complying with the law in paying a certain amount of tax. As always, the amounts will be fully verifiable by the network and next to impossible to fake, which should significantly reduce tax fraud.
Will blockchain change the world?
The short answer here is ‘yes’, blockchain will change (and arguably already has changed) the world. And this change doesn’t just come from the people who are trading tokens on blockchains, and those limited few who are creating generational wealth with just one or two transactions.
Rather, it will come from the immense potential of the underlying technologies. As it stands, we are only just scratching the surface of what blockchain can do and how it will be applied. In the years and decades to come, we expect that nearly every aspect of our digital and physical lives could, and likely will, be changed in some way by blockchain, hopefully for the better.
Where to find out more about blockchain
There’s no doubt that blockchain technology will change the world we live in in many and various exciting ways. If you want to find out more about blockchain by discussing blockchains, their technologies, and their applications with other enthusiasts, try Traderverse. Our platform brings together blockchain developers, users, and investors as well as those just hoping to learn more. To get involved, sign up at Traderverse.io or join us on our Discord or Telegram group.
