By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Originally devised for the digital currency, Bitcoin, (Buy Bitcoin) the tech community is now finding other potential uses for the technology.
Bitcoin has been called “digital gold,” and for a good reason. To date, the total value of the currency is close to $9 billion US. And block chains can make other types of digital value. Like the internet (or your car), you don’t need to know how the block chain works to use it. However, having a basic knowledge of this new technology shows why it’s considered revolutionary.
- A distributed database: Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the block chain. Information held on a block chain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The block chain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet. To go in deeper with the Google spreadsheet analogy, I would like you to read this piece from a block chain specialist.
- Block chain as Google Docs: The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes because you are locked out of editing it until the other person is done with it. That’s how databases work today. Two owners can’t be messing with the same record at once. That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again).With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them. It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people. Imagine the number of legal documents that should be used that way. Instead of passing them to each other, losing track of versions, and not being in sync with the other version, why can’t *all* business documents become shared instead of transferred back and forth? So many types of legal contracts would be ideal for that kind of workflow. You don’t need a block chain to share documents, but the shared documents analogy is a powerful one.”
- Block chain Durability and Robustness: Block chain technology is like the internet in that it has a built-in robustness. By storing blocks of information that are identical across its network, the block chain cannot: Be controlled by any single entity. Has no single point of failure. Bitcoin was invented in 2008. Since that time, the Bitcoin block chain has operated without significant disruption. (To date, any of problems associated with Bitcoin have been due to hacking or mismanagement. In other words, these problems come from bad intention and human error, not flaws in the underlying concepts.) The internet itself has proven to be durable for almost 30 years. It’s a track record that bodes well for block chain technology as it continues to be developed.
- A Network of Nodes: A network of so-called computing “nodes” make up the block chain. Computer connected to the block chain network using a client that performs the task of validating and relaying transactions gets a copy of the block chain, which gets downloaded automatically upon joining the block chain network. Together they create a powerful second-level network, a wholly different vision for how the internet can function. Every node is an “administrator” of the block chain, and joins the network voluntarily (in this sense, the network is decentralized). However, each one has an incentive for participating in the network: the chance of winning Bitcoins. Nodes are said to be “mining” Bitcoin, but the term is something of a misnomer. In fact, each one is competing to win Bitcoins by solving computational puzzles. Bitcoin was the most important reason of the block chain as it was originally conceived. It’s now recognized to be only the first of many potential applications of the technology. There are an estimated 700 Bitcoin-like crypto currencies (exchangeable value tokens) already available. As well, a range of other potential adaptations of the original block chain concept are currently active, or in development.
- Who will use the block chain?: As web infrastructure, you don’t need to know about the block chain for it to be useful in your life. Currently, finance offers the strongest use cases for the technology. International remittances, for instance. The World Bank estimates that over $430 billion US in money transfers were sent in 2015. And at the moment there is a high demand for block chain developers. The block chain potentially cuts out the middleman for these types of transactions. Personal computing became accessible to the general public with the invention of the Graphical User Interface (GUI), which took the form of a “desktop”. Similarly, the most common GUI devised for the block chain are the so-called “wallet” applications, which people use to buy things with Bitcoin, and store it along with other crypto currencies. Transactions online are closely connected to the processes of identity verification. It is easy to imagine that wallet apps will transform in the coming years to include other types of identity management. Block chain technology can fundamentally change how we exchange value and perhaps that’s why this has caught everyone’s fancy. This is still in its nascent stages but definitely a technology that holds vast promise and something to watch for, in the future.