People love great stories and blockchain puts on a great show with the Satoshi Nakamoto mystery, dramas surrounding Silk Road, and cryptocurrencies shaking the foundations of traditional global banking. Entertaining stories aside, blockchain is one of the most intriguing and widely misunderstood technologies available. Here’s our blockchain 101 guide.
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Cryptography keeps cryptocurrency data unique and secure by using encrypted information that acts as the basic token of exchange (instead of gold, or government-backed paper money, known as fiat.)
Simply put, blockchain technology uses a decentralized database (a distributed ledger) that lists all transactions of tokens between users, with each user having a public token address. Additionally, each user has a private key for security.
This ledger needs to be up to date across all nodes (users) to prevent tokens being double spent. Each full node on the cryptocurrency network has a complete copy of the entire ledger on their computer. It is possible, therefore, to see every transaction ever made between public address. Such transparency has other uses too.
As more tokens are mined or calculated by trial-and-error computing, new blocks of data are added to this ledger forming a chain – the blockchain.
To change a record, each copy of the distributed ledger would need to be changed, meaning that such records are immutable. Since the time spent and costs involved to make such a change would be unimaginable, a blockchain is nearly unhackable.
Blockchain workflow. Source: Blockgeeks.com
Blockchain 101: What are the uses of blockchain?
Beyond financial transactions, blockchain technology offers a variety of uses and holds great promise in fields like health care, law, and IoT. Another is digital rights management.
For instance, while digital products (photos, music, etc.) are easy to acquire, store and move across devices, it’s equally easy to copy and share them – effectively stealing them.
However, if we register our creation and ownership of digital products on a blockchain, it’s possible to get immutable proof. It would also enable a more transparent mechanism for supporting digital ownership transfer.
For example, in ports all over the world, ships load and unload products. This involves plenty of paperwork, stamps, and downtime, which all cost money and increase operational risk (i.e., spoiling of products, insurance fraud, criminal activities and such.)
Using blockchain technology in this instance would remove paperwork, signatures could be managed efficiently, and there is an immutable record of every product’s journey.
Recently, IBM and Maersk have been piloting such systems. Additionally, a bold proposal for the port of Dubai in the United Arab Emirates argues that all port transactions should be conducted on a blockchain within just a few short years.
Another emerging blockchain use is trust. Let’s look at identity, for instance.
Today’s internet relies heavily on usernames and passwords, which are easily stolen, leading to identities being comprised. If it was possible to store our identity on a blockchain and have it universally accepted for all manners of authentication, we could establish a confidential and tamper-proof system for all our credentials (passwords, credit ratings, driver’s licenses, birth and marriage certificates, property titles and so forth.) Furthermore, trustworthy online identities could allow movement toward onchain voting.
When we imagine these uses, we can recognize how transformational blockchain could become. In fact, using blockchain, we can rethink the world’s major business institutions and pave the way for new forms of computerized interactions.
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Fell down the rabbit hole two years ago. Time to write about it.