Blockchain! Lately this concept pops up everywhere, but what does it really mean and more importantly – what can we do with it?
Blockchain is a digital ledger created by the mysterious Satoshi Nakamoto, a pseudonym for an undoubtedly genius developer, or group of developers. If blockchain sounds familiar, it’s probably because it’s most well known for being the technology underpinning Bitcoin. While this is the most common association people make when discussing blockchain, the fact is, it’s so much more. In fact, new potential uses for the technology are being found all the time, from copyright protection to handling medical data or preventing voter fraud.
But how does it work? At its core, blockchain is a way to make it harder for digital data to go rogue. Consider the whole file sharing community and how, for example, the recording industry has been forced to create new business models to stay relevant.
Digital information, they found out, likes to be free which in their case meant no one paid for a digital product that could be downloaded for free. Digital information is easily copied and modified which presents a real problem: how do you know what data you can trust? Blockchain offers one potential solution to this problem since the data stored in a blockchain is secured using cryptography.
Think of a blockchain as an incorruptible digital ledger of transactions, financial or otherwise. This ledger exists as a shared and continually restored database spread across millions of computers making it extremely hard for anyone to hack. Each block then is a record of transactions that when completed is added to the blockchain.
Pros and cons Owning some cryptocurrency basically means that you have the private key to its location on the blockchain. With it, you can make a withdrawal, but if you happen to lose your private key, your money is also lost. Your account also has a public key which is what you provide to anyone who wants to send money to you.
A huge concern in the Tech sector is growing centralization. A few huge tech companies basically own and run our everyday internet experience.
Blockchain technology could potentially act as a counterweight to this since the information on a blockchain is decentralised and spread across many, many computers.
As a result, a blockchain isn´t dependant on the uptime of a single server and can act as a secure and always up data storage.
This also means that a transaction can be made without the use of a third party, like a bank in case of cryptocurrency, for example.
Stop and consider this thought for a moment. Imagine, financial transactions being made without banks! In many ways banks are foundation of western society. So, what if, in a couple of years, you and I actually do most of our purchases using a stable, dominant cryptocurrency? What sort of consequences will that have on our society? A financial system owned by all of its users? Who is that good for? And what are the potential pitfalls?
Lots of questions. Unfortunately, I don’t have all the answers. One thing I do know is, banks and other financial institutions will need to reassess their business models or face being left behind.
The rise of Ethereum As I mentioned earlier, Blockchain technology is used for so much more than digital currencies today. This is partially due to Ethereum, an open software platform based on blockchain technology that opens up possibilities for developers to build blockchain applications without years of experience in cryptography or knowledge of advanced mathematics.
While the Bitcoin blockchains purpose is very specific – to enable online, digital, peer to peer payments, Ethereum’s is more generic. It runs the programming code of any decentralised application, which opens up great possibilities. An application built on a blockchain such as Ethereum is called a Dapp or Decentralised application.
Companies can build Dapps for all sorts of purposes – for example to safely store sensitive digital data or collaborate with other companies without compromising their individual intellectual property. A growing awareness in customers regarding where the products they buy actually come from has made some food companies build Dapps to provide transparency to their supply chain.
The same approach has been adopted by some companies in the gem industry to prove to their customers that they’re not buying blood diamonds.
One important feature of Ethereum is smart contracts. These are blockchain run programs that dictate how any sort of exchange should be handled. Be it currency, content, medical records or whatever your application is supposed to handle. Since these contracts run on the blockchain they run exactly as programmed thereby avoiding any sort of fraud, third party tampering, downtime or censorship.
It’s early days so we are still only getting a sense of the full potential of blockchain technology. More and more interesting use cases pop up all the time. If your company has any needs that might be solved with a decentralised application, we’d love to discuss them with you!