If you know a little about cryptocurrencies like Bitcoin and you’ve ever questioned how they work, you’ve probably heard of the term ‘blockchain:’ the technology behind crypto coins. But what exactly is this technology, and what is its impact beyond cryptocurrency? There are plenty of explanations of blockchain online, but many of them require specialized knowledge to be able to understand them.
However, despite all the incomprehensible explanations out there, blockchain technology is not that confusing. The principles, history, and place in society can all be summed up in easy-to-grasp explanations.
What is Blockchain?
The first thing cryptocurrency novices (and even some intermediates) want to understand is what this technology is, what it does, and how it does it.
As the name suggests, blockchain is a digital chain of blocks. These blocks are made up of digital information. In the case of cryptocurrency, each block records the details of a transaction (such as the amount paid, who paid it, and when it was paid). On top of that, every block includes two more pieces of information: a hash of itself, and a hash of the previous block. Hashing is a way of distilling any information into a 64-character string. This string is specific to that exact text; change the text in any way, and the hash changes too.
Each block is added to the previous block, forming one long continuous digital chain. Sounds simple, right? So, why is this technology considered so special? Well, the key is in the hash.
Why is Blockchain Such a Big Deal?
As explained above, each block in the chain contains a hash of the previous block. As a result, if you tampered with one block (by editing the transaction amount, for example), its hash would change. To cover your tracks, you would then have to edit the hash contained in the next block—and the next, and the next, and so on. Since it would be virtually impossible for anyone to recalculate every hash in the chain, the system is virtually tamper-proof.
Essentially, the chain acts as a ‘ledger’ which records and distributes digital information but cannot be edited. This makes it incredible for security, which is one big reason why so many have taken an interest in it. However, tamper-resistance isn’t its only benefit. This technology is built on many other principles that make it such a big deal.
Another major security benefit is decentralization. When data is stored entirely in one place, it is very easy for hackers to damage or manipulate it. Blockchain technology, on the other hand, spreads data across all the nodes on the network, so there’s no one central source to attack. And it’s not just security where the technology is innovative. Other development principles like peer-to-peer transmission without the need for a third party and transparent, pseudonymous transactions have all contributed to its success and popularity.
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How was Blockchain Developed?
It is clear to see that blockchain is one of the most innovative and impactful technological developments of the 21st century, but how did it come to be?
Surprisingly, while it didn’t come to the public eye until the 21st century, this technology actually got started in 1991. It was first described in a paper where its intended purpose was to prevent tampering with document timestamps.
It wasn’t until almost two decades later that it was conceptualized as the basis for a possible currency. In 2008, under the alias of Satoshi Nakamoto, a person or group of people published the whitepaper ‘Bitcoin: A Peer to Peer Electronic Cash System’. Their version of the system included one major improvement: it included a way to verify each block without a third party. Nakamoto launched Bitcoin in January 2009; in 2010, the first real-world Bitcoin payment was made, and the now-defunct Mt. Gox cryptocurrency exchange was launched.
Later, in 2012, both companies and individuals began recognizing the potential the technology held. Far from being just a way to run a digital currency, it was clear that it could be used to underpin many other applications. 2015 onwards saw the likes of NASDAQ, Barclays, Goldman Sachs, Visa, Google, Amazon, Microsoft, and more researching and investing in it.
Since then, blockchain has been developed into numerous real-world applications beyond currency, from gas and oil transactions to diamond tracing to fraud prevention to art verification.
What Blockchain Can Do For Society?
As you now know, blockchain’s security and transparency make it one of the most dependable technologies around. On top of that, since it doesn’t require any workforce, it’s more cost-effective, efficient, and error-proof than previous solutions. All these benefits and more, make the technology suitable for an almost endless variety of applications, just like with the examples given above. As a result, as more big corporations continue to back blockchain, it has incredible potential to improve society as we know it.
Since the technology can be applied to almost every industry, it is impossible to list every potential use case, but here are just a few interesting and useful possibilities:
- Banking: While cryptocurrencies themselves aren’t backed by banks, banks are already beginning to adopt blockchain technology into their own processes. It makes exchanging money more efficient and secure than ever before, so it’s no surprise that 15% of major financial organizations are already implementing the technology.
- Healthcare: Most countries still lack a centralized national medical database, putting sensitive data and even lives at risk. Blockchain can serve as the basis to a secure medical database, facilitating better data collaboration and thus improving diagnoses and treatment.
- Charity: Many people don’t donate to charities because of skepticism. A blockchain ledger could display a transparent account of exactly how donations are spent, increasing trust and encouraging more people to pledge money.
Do Governments Support Blockchain?
In many countries around the world, governments are directly getting involved in backing and supporting blockchain development. In South Korea, for example, the government is investing $900 million in blockchain research for applications in voting, real estate, customs, and more. Similar development projects are being conducted by the governments of Moscow, the Netherlands, and other major powers worldwide.
However, not every country is fully on board. One of the most notable cases of a country opposing blockchain recently is China. Just this year on February 15th, 2019, China finalized its new regulations on its use. These new laws require that any blockchain providers doing business with China must adhere to anti-anonymity legislation that demands ID verification for all users. The government fears that the anonymous use of this technology will put national security and social order at risk.
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Thankfully, these laws don’t need to get in the way of healthy blockchain development. As long as interested parties use free VPNs for China, they’ll be able to hide all their internet activity from the government and thus continue to do business with blockchain provides undetected.
What’s Next for Blockchain?
Blockchain is always developing, rapidly growing and improving year upon year. While it is impossible to say exactly what’s coming in the future, here are some trends to look out for in 2019:
- Greater impact on the Internet of Things (IoT): We’re working towards a future where almost every device, from cars to refrigerators to whole cities, will be internet-enabled. Blockchain’s security benefits will be crucial in preventing the hacking of systems like self-driving cars. With other IoT technologies rolling out this year (such as 5G), this technology is likely to have a big impact on these new Internet-connected devices.
- More government regulation: As blockchain technology becomes more familiar, it’s likely to attract more scrutiny from governments. Of course, this isn’t necessarily a bad thing. The regulation doesn’t mean banning this type of technology; on the contrary, it will help blockchain grow by improving trust and setting the right frameworks for development.
- New cryptocurrencies with more stability: One reason many people are reluctant to invest in cryptocurrencies like Bitcoin is that they can be as much as 10 times more volatile than traditional currencies. This year will see new cryptocurrencies optimized for stability, which could greatly increase the rate of cryptocurrency adoption.
