Demystifying the ‘blockchain’ tech that is behind Bitcoin
Question: Can you give me a layman’s explanation of what exactly “blockchain” is?
Answer: With the hype surrounding cryptocurrencies continuing to grow, more people are hearing about the underlying technology known as blockchain.
At the core of blockchain technology is a publicly shared “immutable digital ledger” — meaning that it’s essentially a tamperproof record-keeping technology.
What are ledgers?
Ledgers have been part of how humans trade since nearly the beginning of our species and continues to be how we record transactions.
Until blockchain, ledgers were generally controlled by a single entity and could be manipulated without others knowing.
Us old-timers also remember the time-consuming, error ridden manual record-keeping on green ledger paper for sales transactions or inventory tracking — which is why VisiCalc, the first electronic spreadsheet — was such a game changer.
With only one copy of any ledger, it’s easy to manipulate the data when “no one is watching.”
Today’s private ledgers, whether it’s in banking, real estate, taxes or health care, requires us to “trust” the organization that controls it.
This middle-man model is also how so many global organizations have become so powerful — we’re required to use them in order to execute a transaction.
This network of privately controlled ledgers that don’t talk to each other is also why so many transactions take so long to execute.
Immutable digital ledgers
This stranglehold on so many data sets is what prompted the creator of blockchain to develop this publicly visible, distributed ledger platform.
Imagine a ledger that is shared in real-time with millions of others that shows every transaction in a continuously growing list of transactions.
To further secure this public ledger, encryption keys are created for each entry that ties to the next entry, which forms a “chain” of interconnected entries to the ledger.
Any attempt to modify an entry would result in the ‘breaking of the chain’, which would clearly be noticed by the millions of other connected ledgers that had the authentic entry and the offending computer gets ‘kicked’ from the ledger.
This decentralized ledger also eliminates the middleman, therefore transactions become one-to-one, instantaneously — which is why so many large “gate keeper” companies are downplaying the value of this technology.
Much more than Bitcoin
The original focus was on our financial systems, leading to the now famous Bitcoin, which uses blockchain to track who owns what in the virtual currency, but there are far more interesting possibilities.
The fashion industry was one of the first to see the value of blockchain as a way to fight counterfeiting:
The health-care industry is looking to blockchain to help in electronic health record management, data security, interoperability and more.
Initiatives are underway in real estate, government, education, insurance and one of the most compelling uses: identity management, which could be the gateway to secure voting system.
There’s a bit of a gold rush mentality for those who truly grasp the revolutionary nature of this technology, so expect to hear lots more about blockchain for many years to come.