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Blockchain is everywhere right now. Here's your straightforward guide to explaining the basics.
WHAT IS BLOCKCHAIN, EXACTLY?
If you aren't exactly sure, then you are not alone! This primer from IBM explains things really simply and easily.
“To summarise, a blockchain is a tamper-evident, shared digital ledger that records transactions in a public or private peer-to-peer network. Distributed to all member nodes in the network, the ledger permanently records, in a sequential chain of cryptographic hash-linked blocks, the history of asset exchanges that take place between the peers in the network.
All the confirmed and validated transaction blocks are linked and chained from the beginning of the chain to the most current block, hence the name blockchain. The blockchain thus acts as a single source of truth, and members in a blockchain network can view only those transactions that are relevant to them.”
HOW DOES BLOCKCHAIN WORK?
Harvard Business Review provides a great breakdown of the five basic principles underpinning blockchain technology
1. Distributed Database
Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or the information. Every party can verify the records of its transaction partners directly, without an intermediary.
2. Peer-to-Peer Transmission
Communication occurs directly between peers instead of through a central node. Each node stores and forwards information to all other nodes.
3. Transparency with Pseudonymity
Every transaction and its associated value are visible to anyone with access to the system. Each node, or user, on a blockchain has a unique 30-plus-character alphanumeric address that identifies it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses.
4. Irreversibility of Records
Once a transaction is entered in the database and the accounts are updated, the records cannot be altered, because they’re linked to every transaction record that came before them (hence the term “chain”). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered, and available to all others on the network.
5. Computational Logic
The digital nature of the ledger means that blockchain transactions can be tied to computational logic and in essence programmed. So users can set up algorithms and rules that automatically trigger transactions between nodes.
IS BLOCKCHAIN ONLY USED IN FINANCE THEN?
No! There are many uses of blockchain technologies. Although crypto currencies are prominent currently, other applications are rising have huge potential. It will take years to transform businesses, but it starts now.
WHAT NEXT FOR BLOCKCHAIN?
Beside cryptocurrencies, one of the most promising developments on blockchain is the use of smart contracts. The concept of smart contracts was first described by Nick Szabo in 1994 . He describes smart contracts as ‘a computerized transaction protocol that executes the terms of a contract’.
The rise of the Ethereum blockchain facilitates the easy development and deployment of smart contracts in a variety of different circumstances, opening up the application of blockchain across many industries and scenarios. IBM and Maersk are leading the way in disrupting the international trade market, by creating a new company, building a global trade platform using blockchain technology aimed at improving the cost of transportation, lack of visibility and inefficiencies with paper-based processes.
Whilst blockchain is still a term people are becoming familiar with, one thing is for sure - its here to stay.
2008: Under the pseudonym Satoshi Nakamoto, a white paper on ‘a new electronic cash system’, is published
2009: Bitcoin begins running, on an open source blockchain
2012: Ripple, a digital currency and blockchain for transferring money, is released
2013: Price of bitcoin hits $1,242, a record high, having been as low as $0.31 in 2011. US closes down Silk Road, an online marketplace using bitcoin
2014: Banks warn of the risk of money laundering via bitcoin. Digital currency exchange Mt Gox collapses, with $480m in customer deposits missing
2015: Banks and financial institutions begin to test blockchain technology, including using bitcoin and Ripple on internal ‘permissioned’ systems fewer
2016: 15% of banks are expected to be using blockchain
2017: The ethereum smart contract platform now has a market cap of around a billion dollars, with hundreds of projects headed toward the market
Beyond: Blockchain scaling. A scaled blockchain is expected to be fast enough to power the internet of things and go head-to-head with the major payment middlemen (VISA and SWIFT) of the banking world