Have you ever heard of a trust fall? It’s when people allow themselves to fall backwards onto someone else and trust that they will be caught.
Here’s a group of internet strangers showing us how it’s done.
By now, you are most likely familiar with cryptocurrency – the different types, how to use them, and how to mine them. Heck, you might be comfortable enough to start teaching crypto to other people. But hold your horses, there is still something you must learn before going all professor on your peers, and that’s blockchain.
What is the Blockchain?
The blockchain is a database that’s sometimes referred to as a decentralized database with its information stored in a sequence of blocks that link together. Every new piece of data entered is put into a new block. That block is then connected with the previous block.
These blocks are chronologically added to the chain (a long list of other blocks), making their history easier to track and almost impossible to tamper with. That is — unless you can successfully perform a 51% attack. More on that later.
A wide array of information can be stored in these blocks, but most of the time, they are used as a ledger (a record) in the world of crypto to keep track of transactions.
Blockchain’s best feature is that the blocks can never be reversed or edited by anyone, even by the mysterious creators or development team, making the records safe, transparent, and permanent.
And just like you would use a trusted third-party like a bank or Zelle, PayPal, e-transfer, or Western Union to send money or pay for goods or services, you can use the bitcoin network in the same manner.
But the biggest benefit is that a blockchain’s network, like bitcoin, is globally available to everyone, and there’s no centralized place for malicious attackers to target!
TLDR: A blockchain is a trustless medium for storing all kinds of data. It’s a highly secure, highly scalable solution because a copy of the entire blockchain is stored on every participating member/node in the network.
How Does the Blockchain Work?
Think of the blockchain as an accountant in the form of digital timestamps. This means the documents or information put into it cannot be tampered with nor backdated.
We’re looking at you creative accountants!
When most people think of blockchain, they usually think of bitcoin (sometimes, vice versa). Bitcoin uses the blockchain. But there are so many more great use cases for blockchain other than payment.
Blockchain is creating a new kind of commerce that removes the hurdle of trusted third-parties who cannot offer their services for that industry or region for merchants or customers to transact.
The first notable use of the technology was in 2009, with Bitcoin's creation by Satoshi Nakamoto. So technically speaking, the blockchain is a digital ledger that's uber transparent.
Every block recorded is permanent and impossible to change, thanks to cryptographic hashes. These cryptographic hashes give each block a unique digital fingerprint, aka a hash. This makes each transaction secure, unique, and personally identifiable on the blockchain so it can never be lost.
A hash is created only when a block is created, so when something inside the block changes, the hashes changes along with it. Also, to make sure that the chain can never tamper, the hash of the previous block that is to be connected is contained as information on the new block. This makes sure that a block can only connect to a previous block that it has the hash of, making tampering quite difficult to do as you have to edit a lot of previous hashes for it to proceed. If a block is edited and the hashes moving forward don’t match, this makes the future invalid.
Of course, modern computers are extremely capable of editing hashes and updating blocks fast enough to tamper with data. So another failsafe technology is added to help secure blockchains. This is where proof-of-work comes into the picture.
Proof-of-work (POW) is a mechanism that slows down the creation of new blocks, allowing for malicious tamperings to be detected easily. Tampering with a single block to change a blockchain would mean that you have to go through the POW of that block and every other block that comes after it.
There’s also another type of mechanism called proof-of-stake (POS) in hopes of eventually moving us away from expensive electricity costs and mining equipment. But that’s for another day.
As you can begin to see, it’s extremely costly to hack a blockchain. A malicious attacker would need approximately 51% of the network’s total mining power to hack a blockchain.
The best way to defend against a majority attack is to have more participants use the network. A phenomenon known as the network effect.
Together, hashing and POW both make blockchains secure. It is further solidified by using a peer-to-peer (P2P) network that allows anyone to participate rather than have a central party control the entire blockchain.
Everyone joining the network gets a copy of the blockchain and serves as nodes that verify blocks in consensus (a kind of P2P voting) every time a new block gets added to the chain. So aside from hashing and POW, editing a single block would require you to edit transactions on all nodes, making the entire system reliable and safe.
Pros & Cons of the Blockchain
As it is with anything, there are positives and negatives towards a given solution. But first, let’s start with the pros of the blockchain.
- Trustless, Faster, Low Transaction Fees – The blockchain reduces middlemen, while making transactions more efficient and faster.
- High-Quality Data – They use consensus (P2P voting) between all nodes, which reduces the errors caused by centralized systems like typos.
- Immutable And Transparent – All blocks are linked together to form a verifiable information chain. And available for anyone to audit, forever.
- Network Effect – Blockchain networks benefit from the network effect phenomenon. Every new user or node that participates in the ecosystem helps to strengthen and make it more valuable. When you combine consensus, cryptography, and global scalability, it’s more efficient, safe, and durable than a centralized third-party.
- 100% Control – In a digital world where anything can be duplicated, copied, and censored, you now have complete control over your digital assets as long as you protect your private keys.
Cons of the Blockchain
- Majority Attack – Some smaller blockchains run the risk of a 51% attack where a single entity or group of miners collude and control a majority of the network. They could reverse transactions, change rules, and create havoc for the community.
- Private Key Control – Much like passwords but more secure, this 256-bit string of letters and numbers is what keeps all your assets in the blockchain secure. The downside of losing your private key is there is no centralized system to help you recover your lost access.
Here's what a bitcoin wallet's private key looks like: 5KRZ595RGW6EC86ww4i42ZG7GJnTYBSQs2LiUg98MQSHLQ94yGx
- High Fees And Network Congestion – Fees can become expensive during times of network congestion which occurs when a large number of people attempt to transact at the same time. This problem is a limitation of proof-of-work chains.
- Lack of privacy – Some chains are entirely transparent and run through consensus. And some public chains create too much transparency for some organizations. It’s a big reason why big corporations and enterprises haven’t adopted blockchain technologies just yet since it would reveal their intellectual properties and assets to the public.
Adopting Blockchain for the Today’s World
The non-tampering and backdating features of blockchain can help many industries today.
A good example of this can be demonstrated with used-car sales. The car’s odometer provides a transparent way for both buyers and sellers to disclose the vehicle’s exact mileage history.
Another use case is voting. Not only would every vote be as transparent as it is secure, but it would also save up on paper and lessen fraud. Since the chain cannot be tampered with and every vote cast would be transparent across all nodes in the network, every vote would be secure and fraudulent activity would easily be taken care of. This is exactly what Agora from Switzerland is currently working on now.
The convenience of tracking history in the world of blockchain can be put to good use inside the food industry. With blockchain technology, bad batches can easily be sorted, found, tracked, recalled, and replaced. Not only can the bad batch be found, but as all the details of its transport from farm to table are noted, the reason for ruining the batch can also be sought out.
Other use cases include:
- Real Estate
- Insurance Providers
- Commerce Platforms
- Digital Media Rights
- And more…
What Does the Future Look Like for Blockchain Technology?
The most widely applicable use for blockchains is currency. Even centralized institutions that see the benefits of improving our current monetary systems, such as the G20, IMF, and the World Bank, have started looking at blockchain technology.
Many financial institutions are interested in Stablecoins to avoid the volatility and risk that comes with cryptocurrencies. Mostly on the ability to profit rather than the next-gen and future-helping technology it bestows.
We’ve also seen some institutions looking at private blockchains to build a centralized system on top of the decentralized network to harness the decentralized ledger’s power and benefits. Most notably, Amazon and BMW.
As we have seen repeatedly, new inventions open up more doors for innovation than it closes, but it does take time.
One thing we do know for certain is this technology is still in its infancy. And it’s up to us to determine how it will be used for the greater good.
We believe the blockchain will revolutionize the way our society works.
What do you think? Leave a note in the comments.