What Is a Blockchain and How Does it Work?
Have you heard about blockchains? If you’ve been following technological advancements in investment, banking, or cryptocurrency, you might have.
Usually defined as a “distributed, decentralised, public ledger,” it’s also the record-keeping technology behind Bitcoin. While it might sound confusing, the basics aren’t that complex.
In this article, we’re going to take a closer look at blockchain. We’ll cover its origins and development, how it works and its uses.
How Does Blockchain Work?
Blockchain stores transactional records in several databases, making up the “chain” network, and it’s connected through peer-to-peer nodes. Usually, this is referred to as a digital ledger.
Every single transaction needs to be authorised and authenticated by the owner’s digital signature. These measures safeguard it from tampering and make all information contained in the ledger highly secure.
You can think of it as a Google Spreadsheet shared amongst many computers. It contains information on every transaction but, while anyone can see it, no one can corrupt it.
What Is Blockchain Used For?
Blockchain technology is usually associated with money transfers or purchases. These transactions are secure and free; you don’t need to pay for the transaction like you would with a bank. There are many applications for blockchain, both outside and within the area of commerce. We’re going to look at a few of the most popular uses.
Financial Transactions in blockchains are made using various cryptocurrencies, like Bitcoin. They’re free of charge and extremely secure. Payments occur via your Bitcoin wallet.
The most significant benefit is that you can make transfers without having to worry about the security of your information or money.
Verification of Information
If you add something to the blockchain, it stays there forever. Since there’s only one identifying code ID for each person in the blockchain, you can’t alter or steal the records.
For example, let’s say that Jane paints a picture. The information is stored on the chain and immediately distributed to thousands, if not millions of nodes. John, jealous though he might be, won’t say that he painted the picture. After all, thousands of ledgers identify Jane as the creator.
Remember, the information is also publicly accessible, but no one can alter it. Anyone can verify a piece of data stored within the blockchain, and the records are close to impossible to fake. That security is one of the traits that make the technology so powerful and attractive to various industries.
Is Blockchain Technology Safe?
Blockchain is often proclaimed as being easy to monitor, but nearly impossible to corrupt. It’s true, to an extent. Anyone can gain access to the records, but since it replicates to every new block on the chain, there are millions of copies. It’s this feature that makes the technology so safe and secure.
A blockchain is almost as anonymous as it is transparent. Yes, you can view any of the billions of transactions that take place. You can see the what, where, when and how many of each purchase history. However, you won’t find any identifying information. At best, you’ll be able to see a wallet ID, but you won’t be able to identify the owner.
The question is, if you can’t verify the identity of whoever is adding blocks to the chain, how can you trust it? For that, we need to take a closer look at the blockchain’s security measures.
The first thing you need to know is that blockchains store all data chronologically. That means that the addition of new information to the “end” of the chain is constant. After adding a new block, it’s nearly impossible to alter the records it holds.
See, every new block contains the hash of the previous one, along with its unique code. The hash code is automatically generated by an algorithm which translates data into a string of numbers and letters. If there are any alterations to the information, the hash changes as well.
How does that translate to security? Here’s an example:
Let’s say that you’ve decided to make a purchase online. Now, a hacker wants to edit the transaction to increase how much you pay. As soon as the amount is adjusted, the hash will change. Now, it will no longer match the code contained by the following block.
To cover his tracks, the hacker will need to update the hash of the next block, as well as every single one following it. Recalculating all those hashes would require an enormous amount of computing power – much more than is reasonably possible to achieve.
You can’t just create a block on the chain, either. For a new device to join the network, it must solve a complex mathematical problem. This “proof of work” system is known as mining. It’s the only way to receive authorisation to add a new block to the chain.
This process makes it relatively useless for a hacker to try and attack the system. For a coordinated assault, a hacker or group would need to control more than 50% off the chain’s computing power. Considering the size of the network, the odds of a 51% attack happening is practically impossible.
The Origins and Development of Blockchain
Blockchain’s history is a short one for a significant global technological breakthrough, starting in 1991. That’s when cryptographers W. Scott Stornetta and Stuart Haber published their whitepaper on the topic.
It focused on the creation of a cryptographically secured chain of blocks known as an “immutable ledger.” Unlike traditionally time-stamped documents, this ledger would be able to withstand tampering. They conceptualised a digital safety deposit box that could record the creation date and time of a specific document. It would then store an electronic copy of that particular record for safekeeping.
Even though Stornetta and Haber planted the seeds for blockchain technology, it was Hal Finney that created the first version in 2005. However, this simple system served primarily to generate money by solving computer puzzles.
The technology only began picking up speed in 2008, when Satoshi Nakamoto released a whitepaper on blockchain cryptocurrencies. The paper, titled “Bitcoin: A Peer to Peer Electronic Cash System,” spoke about a modified version of blocks and chains. The new version would be able to support a cryptocurrency.
It’s his innovation that gave birth to the technology we know today. It laid out the structure for a decentralised and digitised blockchain platform that spread control out to many global users. No single entity would have total authority over the system.
Can I Make My Own Blockchain?
Absolutely, yes. That said, it’s not an easy endeavour, and blockchain development is very complicated. If you were hoping to get an experienced developer, don’t hold your breath. Many different industries are looking at how they can use these solutions to improve their business processes. As a result, developers are hard to come by.
You can, of course, create your own. By using a standard programming language like Python, you can build your blockchain over HTTP. The coding fundamentals are pretty straightforward. However, you’re better off taking the time to complete a few courses on the subject.
Once you’ve gotten the complicated coding and setup out of the way, you’ll need to start marketing your new currency. Getting your coin into widespread use is likely one of the biggest challenges you’ll face.
For a cryptocurrency to be successful, it needs millions of users mining, verifying, and making transactions. Not only will you need to invest quite a bit in marketing, but you’ll also need to find a way to set your coin apart from the many others already available.
Who Is Using Blockchain Today?
Entire industries are exploring ways they can use blockchain to improve their processes. Although the majority is still in the testing phase, these projects are becoming more common.
For example, Shell is working on a platform for the settlement and trade of Brent crude oil. Other examples include Dole, Walmart, and Nestlé. With the help of tech giant IBM, they were able to create a food traceability system using blockchain.
Now, all suppliers, distributors, retailers, and consumers can gain access to information about the food they buy or sell.
Companies can use it to trace the origins of contaminated foods to their source fast. With that technology, suppliers can quickly remove spoiled or toxic products from store shelves.
AXA now offers flight insurance via blockchain technology, while Facebook is using it to build a new cryptocurrency. Some banks and financial institutions, such as ICB of China, JPMorgan, others also make use of blockchain technology.
Online Gambling Industry
In some ways, blockchain has already had a significant impact on the online gambling industry, especialy for betting with Bitcoins. With billions choosing to visit digital casinos annually, countless transactions are happening every day. However, in this particular industry, the issues of trust, transparency, and, and fair dealing is vitally important.
With distributed ledger technology, the providers can address these issues directly. Blockchain is a transparent system that records every transaction and stores it as a public record. In other words, if you use Bitcoin or other forms of cryptocurrency to gamble, every deposit and withdrawal is tracked and noted.
Blockchain can monitor other online gambling activities as well. For example, the technology allows players or officials to check the fairness of games and their payouts. It also helps keep the system secure and tamper-proof.
Another benefit is the anonymity it affords gamblers and sports punters. With the recording of every transaction, the system doesn’t store any personal data. Instead, it links the information to your unique crypto-wallet ID code.
There are still some objections from critics, however. For example, UK casinos are required by law to ask players to prove that they have a certain amount of funds available when making deposits. Since the transactions via blockchain are anonymous, this goes against the industry regulations.
Another issue is the inability to guarantee the worth of a currency. Bitcoin’s value, for one, is known to fluctuate wildly. A deposit of a specific amount today might have a radically different one in a week.
Despite the risks, the industry has seen improvements in crypto and the use of blockchain. Many casinos and sportsbooks are already using this technology. With the growing popularity of cryptocurrencies, gambling sites will likely continue to add them to their listed payment methods.
Conclusion: The Future of Blockchain
Blockchain has come a long way from its theoretical origins in the early ‘90s. The technology is comfortably settling into its late twenties, having survived a lot of intense scrutiny over the last two decades. It’s made quite the name for itself, in no small part because of cryptocurrency.
The anonymity and security alone are significantly contributing to the platform’s popularity. However, the exploration of various other uses has seen the boundaries of the technology pushed back.
Many industries are working on ways to apply it to their businesses to make them more accurate, efficient, and secure. Now, as we enter the third decade of blockchain’s existence, it’s no longer a question of “if” industries will implement the technology, but “when.”