What is Blockchain?

Blockchain is a peer-to-peer platform that allows money and other property to be given to other people without needing to go through a middleman. It uses cryptographic algorithms to protect itself and users’ property, creating an immutable and anonymous record of transactions between potentially millions of users.

There are already several operational blockchains in the market with the most popular, Bitcoin, currently worth US$20 billion. Users of Bitcoin rely on no bank and, importantly, have no fees charged for their transactions.

Some blockchain purists see the technology as a way to remove power from global giants like banks and government. Others – like banks themselves – see blockchain as a technological enabler to massively drive down operational expenditure. How does it work? The computers’ processing transactions on a blockchain collate a number of transactions and put them through a series of cryptographic functions – creating a “block” of transactions.

The block of transactions is then compared with the existing blockchain so that the system can guarantee when a party tries to send money, there is proof in the blockchain (which acts as an audit trail) that they actually have the money.

Once this is completed, the block will formally be added to the blockchain. Once all of this processing is completed, all computers on the blockchain update the record so that the exact same information is held by all parties.

This ‘distributed ledger system’ makes it almost impossible for one bad actor to change how much money they have as their record would conflict with every other record.

In the Bitcoin Blockchain, the platform can process 25 transactions per second, and many other platforms – like Ethereum or Hyperledger – can process even more. What can it be used for? Beyond trading cryptocurrencies, businesses have begun applying blockchain to a variety of other industries and use cases. It can be used for identity management – with the Estonian government developing a blockchain digital identity system, for example – as well as ownership verification, voting, creating smart contracts, and more.