What is blockchain?
A frequently discussed technology in popular culture is blockchain, which is changing the way digital transactions are made online. Despite the widespread attention it has received, blockchain technology isn’t exactly simple, leading to confusion around the topic. To provide clarity to the muddled waters, let’s take a look at some of the key terms and processes of blockchain technology.
How does it work?
A blockchain consists of an assembly of records, known as blocks, which are connected and secured using a type of math called cryptography. These records can consist of anything, from stock trades to medical records. Each block contains a timestamp and link to a previous block, which forms a chronological chain. Blockchains store data through a network of personal computers, which both decentralizes and distributes the information. While users can view and add data to the blocks, they cannot modify the information already there.
What about online security?
Blockchain poises to make online transactions more secure while eliminating middlemen. Since blockchain is decentralized, no one entity or organization can control it. Whenever a new block is added to the chain, computers verify whether the previous transactions actually occurred. Because each block references the block before it, each transaction made down to the original block is confirmed. The blocks of those who attempt to cheat the system look different from other blocks. Since blockchain requires consensuses among all users, the cheater’s version of the blockchain will be disposed.
The role in Bitcoin
Blockchain owes its popularity to the rise of Bitcoin, a cryptocurrency for making online payments. It is important to not conflate Bitcoin with blockchain, however. Although blockchain is the technology driving Bitcoin, it has several other uses.
What makes Bitcoin unique is the degree of anonymity it provides. This is because a Bitcoin transaction, unlike credit cards and PayPal payments, does not require middlemen, such as banks and financial institutions, which request personal information. Instead, each transaction is validated by other users who earn a small fee in the process. The purpose of blockchain technology with respect to Bitcoin is to verify the owner of the digital currently and ensure only one person is claiming ownership of the currency at a time. This prevents one person from using the same bitcoin twice.
The future of blockchain
Banks and businesses are currently investing in blockchain technology, largely as a way to decrease long-term costs. Software solutions company Mitek predicts 50% of the leading banks worldwide will have blockchain partnerships by the end of next year. Blockchain applications are currently being built on top of virtualized infrastructure in an effort to decrease experimentation costs and tap into potential use cases. From protecting identities to managing a world of increasingly connected devices, the possibilities of blockchain technology surpass digital currently. Only time will tell if it lives up to the initial hype.