WHAT IS THE BLOCKCHAIN?

The best way to start understanding the blockchain is to understand what it proposes to replace. Traditionally, transactions between people which require trust, such as financial transfers, have been conducted by trustworthy organisations like banks. In an imperfect world in which someone might run off with your money, banks have risen as institutions that can be relied on to ensure such transactions are carried out to the letter. These institutions, however, tend to be private, and the systems they use are out of the control of the people who rely on them. Blockchain technology completely revolutionises the nature of making trustworthy transactions. A blockchain is a ledger: a record of transactions which is stored across many computers connected by the Internet. This decentralised nature means that no one owns a blockchain and anyone can use it, but it’s also highly secure, using public-private key cryptography to ensure the identities of the people involved in any transaction. Each deal is stored on the blockchain in a block, and when made, many computers across the Internet verify it. No block can be changed unless all subsequent blocks are changed, thus requiring everyone in the blockchain to be involved in making a single amendment. All these features are designed to ensure that everyone can agree that every piece of information in the blockchain is permanent and correct, and thus everyone can trust in it. An obvious first use for a blockchain was therefore in the foundation of new currencies that are free of the traditional banking system, hence the appearance of Bitcoin in 2009. The blockchain that powers Bitcoin was just the first expression of the core technology; another key one is Ethereum, which generates the cryptocurrency Ether. Open-source, these two leading instances of the blockchain concept have spurred many separate offshoots.

Cryptocurrencies are just one use of blockchains, though currencies are built into them as a way of encouraging early adopters to jump into supporting a new blockchain by creating the network that would allow them to function and repaying them for allowing their computers to be used to perform the complex calculations that go into verifying every transaction.

Beyond cryptocurrencies, the blockchain also has great application for storing information about identity, taking control of information about who we are and what we have away from private companies. Think, for example, about Steam, Xbox Live and PSN, which record what games you own, how far you’ve progressed in them, and who you’re friends with. Your data is locked into those private networks, so if you buy an Xbox One, you can’t import your PlayStation friends list, or any of your games or the Trophies you’ve won, unless Sony allows it. Which would seem unlikely. Although the data companies store is about you, it’s not yours; you simply get to see and use some of it, and always on their terms.

Were that data stored on a blockchain, however, it would be both inalienably yours and transportable to any service which can read it. And since it’s decentralised, if the company which established it goes out of business, the information remains intact and accessible. Ask yourself how this works with the legal ownership of games, and why Sony would want information about their customers to be stored in a form outside their control, and, well, you begin to understand some of the issues that the blockchain’s many freedoms are posing.