The buzz around Blockchain
Updated: Apr 12, 2018
Blockchain is one of those buzz words you hear everywhere right now. But what is it, really?
Let’s start by defining what blockchain isn’t. It's not bitcoin. Blockchain is for bitcoin what the internet is for email. Blockchain is a technology foundation on which you can build many different types of applications, where bitcoin is only one.
Blockchain is an encrypted and decentralized database, where each node automatically verifies all changes made to any another node. If you would compare this to a bank back in the 1960s, it would be like a large number of bank cashiers were sitting all around the world, and that they all at the same time would get information that you had deposited $2 in a bank office in Grums, a small town in Sweden. All these cashiers would then verify the transaction to make sure it was valid. If all looked good, they would update your savings book simultaneously. But if one of them objected, the transaction wouldn’t go through. Such a system is much harder to deceit compared to if you only have one bank cashier in the small town of Grums to fool with your counterfeit banknote.
Today all trade is global, across national borders and beyond personal relationships. To be able to trust one another we have created different types of middlemen, such as states, banks, and media houses, that help us ensure the reliability of what is being said, bought, owned, etc. With the birth of the internet, we encountered some problems. Digital information can be copied and distributed without any limitations. How do you ensure ownership and reliability in such a world? Blockchain is the answer to this. Blockchain is built for the digital age and many say it’s the next generation of internet, Internet 3.0 or the Internet of Trust.
By the help of the Blockchain, you can trust a person in India just as well as your neighbor back home. This makes it possible to start trade directly with anyone anywhere in the world in a secure way. Blockchain is the solution to many of the problems we are facing on the internet today with respect to trust, credibility, security and integrity. There will be many different blockchains in the future, both private with limited memberships and open where anyone online can participate.
How does it work then? We can take money as an example again. In the past, if you wanted to save money, you went to the bank and deposited a certain amount. The transaction was added as a new line to your savings book in a chronological order. If you were to do the same by using blockchain, your deposit would be registered in a new block whereupon the block closes and cannot be changed. Your transaction is then sent as a protected block on to the network, along with a bunch of other transactions just made. The network consists of a large number of computers all around the world. To ensure that everything has been done correctly, so-called "miners" solve a mathematical problem, a kind of really difficult mathematical key that has been built into the blockchain technology. The miners get a small compensation for this, but it will only be the one who solves the problem first who gets the money. This makes the verification process go quickly. Once the block has been verified, it is given a time stamp and then sent back to link to all the other blocks in the blockchain in a chronological order. If you would compare this to your savings book, the block would be registered as a new line to your book in a chronological order. What is different is that the entire transaction chain is available for anyone in the network to see, which means that no one can sit and fiddle with the numbers on their own. Tipp-ex does not exist. If you want to make a change to the blockchain, the change must be registered, sent out on a new verification block to all the nodes in the chain. Only when the updated information has been validated and confirmed will it be added to the blockchain. Blockchain is forward looking, which means that history is always left unchanged.
The open, decentralized and cryptographic nature of the blockchain allows us to trust one another without any intermediaries. Many people say we soon won’t need banks, lawyers or distributors, at least not as middlemen. In addition to eliminating the need for intermediaries, the blockchain also improves security. It is much easier to counterfeit ONE single document protected by a security wall (e.g. a savings book with rows) than a blockchain where you have to change the information in ALL blocks in the blockchain simultaneously on ALL computers across the world where the blockchain is distributed. It's simply too difficult and would cost too much to try and do that, and that's one of the reasons why the blockchain is so secure.
Thus, blockchain does not only affect how we use the internet, it also revolutionizes the global economy. The internet goes from being a place where we can exchange information to a place where we can exchange both information and value.