A Detailed Breakdown of Blockchain – What It Is and Why It Matters in Modern Society
If you possess even just a tiny bit of interest in cryptocurrency and one of its most popular variants, bitcoin, then chances are that you’ve also heard of the term blockchain.
Both of those terms have become more prominent staples of the public lexicon in recent years, but it’s worth noting that they were conceptualized more than a decade ago.
2008 marked the year when the website for bitcoin was initially registered. The following year, both bitcoin and blockchain started to become more popular.
The early concepts of blockchain were being conjured up way earlier though. In 1991, Stuart Haber and W. Scott Stornetta came up with the concept for blockchain while working on a design featuring a cryptographically secured chain of blocks, according to Tech Bullion.
Considering the popularity of blockchain, you may already have a general idea of what bitcoin is and why it matters, but what not as many people may understand is that blockchain could actually become more important in the years and decades to come.
In this article, we’ll discuss blockchain technology in-depth as well as several other topics connected to it.
What Is Blockchain?
Let’s start by asking and answering the most fundamental question related to this piece of technology. Specifically, let’s determine what blockchain technology actually is.
Simply understanding why it’s called blockchain is helpful.
- The “block” in the word blockchain refers to the many bits of information that are coming from users of the technology.
- Meanwhile, the “chain” is a reference to the databases used to house all those bits of data. The term “chain” is also indicative of the kind of processes used in order to successfully store the data.
All kinds of information are included in the blocks. They can include timestamps for a particular transaction and financial details. They will also feature a very particular identifier.
The identifier, known as a hash code, is an essential element of blockchain because it is responsible for distinguishing the blocks from one another. It doesn’t matter how many other elements of two different blocks appear identical because the hash code attributed to them will create some needed distinction.
Another important thing to note about the blocks is that they can host a good amount of data. A single block does not detail a single transaction. More often than not, you will even find numerous transactions contained within a one block.
Blockchain is also notable for being decentralized, and in order for it to work as intended, it must be hosted across a multitude of computers.
How Does Blockchain Technology Function?
The whole process involving blockchain starts with the initiation of a single transaction. The transaction could involve you purchasing something, making a deposit, or perhaps withdrawing some money. In any case, a line of data is created and that will become part of a block.
If the most recently created block is already full, then your transaction will necessitate the creation of a new block.
Associated directly to that block with the transaction data is a private key. The private key is one created through the process of cryptography. – Coinmonks post on Medium.
Now, what happens next is crucial and it’s part of the reason why so many people are optimistic about the future of blockchain and how it can be implemented better as technologies continue to improve.
Once the block has been created, the new transaction it contains is then verified through the initiation of what’s known as the Gossip protocol. The transaction can only be verified if it meets specific criteria.
As noted earlier, numerous computers are involved in the blockchain process. That means that your specific transaction must also be verified by all those computers.
To give you an idea of the kind of verification process that the transaction goes through, Blockgeeks notes that millions of computers are involved in that. Furthermore, the verified transaction is still not contained within a single computer. It is instead stored across a variety of locations thus associating with it a history that is entirely its own.
The verification process also takes place simultaneously across those millions of computers.
Once all the information found within the specific block that was created most recently has been verified, it is then added to the chain and subsequently assigned a hash code. At this point in the process, the transaction has already been confirmed twice and the block that houses it receives its first confirmation.
Before a transaction can be completely verified, it must first be confirmed up to six times. A transaction can be reconfirmed once a new block has been created and added to the chain.
Also, after the block with your transaction has been verified, its contents are made accessible to everyone. You can even look up the details of your very own transaction.
Is the Data Contained within Blockchain Kept Private?
As you have probably already surmised from the whole mechanism of this form of technology, the bits of data contained within blockchain are not necessarily kept private or at least not all of it anyway.
The blocks containing the data can be viewed by anyone, meaning the details of the transaction such as the timestamp can be seen. Crucially though, even if numerous elements of a particular transaction or block can be seen by others, you still won’t be able to tell exactly who is responsible for a specific transaction.
Other distinguishing features are used in the place of personal information such as a username, the private key, or the hash code.
What all that means is that from the outside looking in, people can see what a transaction entails, but they won’t necessarily be able to determine exactly who in the real world is responsible for it.
Notably, you may stumble across terms such as “public blockchain” or “private blockchain.” The words public and private in this context don’t refer to the data within the blocks either being made accessible or not.
Public and private blockchains differ from one another in terms of who can view the data inside the blocks.
For public blockchains, there are no restrictions placed upon who can view the data. If you want to be part of a network, you can do exactly that and look up information when you want to.
Conversely, private blockchains cannot just be joined by everyone. Prospective participants in a private blockchain network must first obtain either an invitation or a permission to join, according to IBM. Private blockchain networks can differ from one another with regards to who provides permissions or invitations.
For business owners who are not completely comfortable with the idea that just about anyone can peer into their financial transactions, setting up a private blockchain network could very well turn out to be the wiser move.
Is the Data Contained within Blockchain Secure?
Given that your transactions can be looked up by potential bad actors, you may understandably feel a little bit spooked by the idea of using blockchain. After all, how secure can the information really be if just about anyone can look at it whenever they want to?
Here’s the thing though: Being transparent and accessible does not equal being vulnerable.
Think of the features baked into blockchain that are designed to safeguard the data.
Private keys are assigned to transactions and hash codes are provided to the chain links. Those distinguishing features are unique. Because of that, they can capably separate transactions and blocks while not necessitating the inclusion of your personal information.
That’s not some throwaway feature. Thanks to that feature of blockchain technology, your identity is not made vulnerable and thus, nefarious entities will have a hard time uncovering any type of identity to steal.
Remember that a unique history is also connected to a block and that contributes to it being even more secure.
Beyond the private keys and hash codes, blockchain technology also benefits from the fact that it is hosted across a vast number of computers.
Hypothetically, let’s say that some organized hackers decide that they want to infiltrate a blockchain being utilized by a company. They can work to target a computer, 10 computers, 100 computers, 1,000 computers, or even 10,000 computers. Heck, they could be organized enough to attack 100,000 computers and it still wouldn’t be enough to compromise the integrity of the blockchain.
This is where it helps to keep in mind that the various lines of data in the blockchain are hosted across millions of computers. To manipulate even just a single record, the hackers would need to change its contents across all of the participating units.
Technically speaking, yes, hackers could pull that off. From a practical perspective though, they would likely be spotted well before they accomplish their goal. Millions of hackers would need to sign up to execute such a heist and they would have to be incredibly synchronized to get it done.
It isn’t technically impossible, but for all intents and purposes, it is.
So, is there any chance for a blockchain to ever be hacked? According to Lisk, even though the technology itself is highly secure, there are elements of it that are significantly more vulnerable.
Cryptocurrency exchanges in particular can be targeted and hacked because they are centralized. The heaps of data in the blockchain are safe, but the same cannot always be said for the cryptocurrency that may be in your electronic wallet.
How Does Bitcoin Differ from Blockchain?
We already got into it a bit earlier, but the differences between bitcoin and blockchain are worth expanding upon.
To put it very simply, bitcoin and blockchain aren’t even the same thing.
Bitcoin is a type of cryptocurrency. It’s an electronic asset that you use when you want to buy something online. Investors monitor cryptocurrency trends carefully so that they can make profits by buying low and selling high.
Bitcoin is also not the only type of cryptocurrency currently in use. Other examples are Ethereum, Litecoin, and even the hilariously named Dogecoin.
In contrast, blockchain is not a form of cryptocurrency. Blockchain is simply the electronic ledger that is used to record transactions taking place online. Some of those transactions involve bitcoin, but others may feature different variants of cryptocurrency.
It is worth noting however that blockchain does not need bitcoin or any kind of cryptocurrency to remain useful. Even if blockchain is never used for the purposes of maintaining cryptocurrency records again, it can still turn out to be a highly useful example of innovation.
What Are the Other Practical Uses of Blockchain?
I noted above that blockchain can continue to be useful even if cryptocurrencies cease to be a thing, but what exactly would the technology be used for? As it turns out, if you have something that can store plenty of data and remain highly secure, it can prove quite handy.
Perhaps the most obvious alternative use for blockchain is to just use it as a kind of backup for important data. In recent years, we’ve seen celebrities and private individuals get their cloud storages hacked, leading to the release and distribution of private images and videos.
Companies can offer access to a blockchain network to prevent those security breaches from taking place.
The Motley Fool also points out that blockchain could be a terrific addition to the healthcare system. Not only would medical records be more secure if they are stored in blockchain networks, their holders would also have more control over them.
We know how effective of a safeguard against identity theft blockchain can be, so why not use it as a kind of hub for digital IDs as well.
Businesses can also utilize blockchain technology as a way to grant their customers access to accurate tracking of products they order. That way, customers can be made aware of how their orders are being handled at all times.
As highlighted in this Forbes article, different companies and even countries are starting to integrate blockchain more into their operations.
What Are the Benefits of Using Blockchain?
We already talked about the obstacles hackers will need to overcome if they want to successfully get into a blockchain. Once lines of data are sent off to the blockchain, they will remain safe and protected there. Hackers will not be able to corrupt them.
It’s also important not to overlook the financial savings that can come from the wider adoption of blockchain technology. To start, companies may have to make a substantial financial investment in order to get blockchain working.
After that though, they can expect to save more because money will not have to be spent on paper documents and the cost of completing transactions will also be reduced because all kinds of fees will no longer have to be paid.
What Are the Downsides of Using Blockchain?
Just like any piece of technology, there are still downsides linked to the usage of blockchain.
One of the most notable downsides is also connected to a highly touted feature of this technology. Since even changing a single transaction record will have to involve numerous users, it becomes very difficult to make a correction when one is genuinely warranted.
Those instances won’t pop up frequently, but glitches do still happen. It takes a lot of effort to address an error in the blockchain database and that is unfortunate.
As blockchain technology soars in popularity, storage space figures to be a more important issue as well. The big-time users of this technology will need to come up with better ways to house all the data in their possession. Otherwise, maintaining the blockchain could end up becoming more difficult.
What Are the Blockchain Trends to Monitor?
It’s widely expected that more and more companies will start using blockchain technology sooner rather than later, but beyond that, there are other trends worth watching.
1) Blockchain adoption will grow: Big brands like Walmart, IBM and Amazon are exploring ways to capitalize on the technology.
2) Serial entrepreneurs will get on board: Serial entrepreneurs have already entered the blockchain space, and more will continue to do so.
3) Apps will be built on the technology: Organizations will build apps on blockchain technology, moving beyond the proof-of-concept stage and into widespread adoption.
4) Blockchain will be used for identification: With data breaches now commonplace, it’s no surprise the blockchain will be put to use to increase security, including personal identification.
5) Blockchain will beef up IoT: Blockchain technology will improve the Internet of Things (IoT) where apps must run anywhere by building trust, reducing risk, decreasing costs, and speeding up transactions.
6) Blockchain will speed up AI: With blockchain, data can be authenticated more reliably and faster, making it possible for AI to access Big Data.
7) Blockchain jobs will grow: According to TechCrunch, blockchain-related jobs are the second-fastest growing in today’s labor market.
What Are the Important Stats to Know about Blockchain?
Per Statista, worldwide spending on blockchain solutions in 2018 already reached $1.5 billion, but that is just a preview of what’s to come. By the year 2022, the investments made worldwide in this example of technology are expected to soar all the way up to $11.7 billion.
For now, the United States is still regarded as the leading force in blockchain, but China is making a big investment in this technology as well.
The percentage of organizations that are uninterested in utilizing blockchain stood at 34 in 2018. Don’t be surprised if that figure drops significantly as this technology is embraced further by different countries and industries.
Blockchain is still growing in popularity and functionality, but it’s not difficult to envision the day when it simply becomes a basic element of everyday life.