Forget Bitcoin — What Is the Blockchain and Why Should You Care?


#1

Imagine that you’re walking down a crowded city street, and a piano falls from the sky. As dozens of people turn to watch, the piano crashes down right in the middle of the street.

Then, without a second to lose, every person who witnessed the event is strapped to a lie detector and recounts exactly what they saw. They all tell precisely the same story, down to the letter.

Is there any doubt that the piano fell from the sky?

This is the principle behind the blockchain, a powerful and widely misunderstood invention that could profoundly affect our relationship with the digital world. Most people are vaguely familiar with the blockchain as the technology underpinning bitcoin. Experts in a range of industries are gushing about its potential. Over a year ago, Marc Andreessen, the doyen of Silicon Valley’s venture capitalists, listed the blockchain’s distributed consensus model as the most important invention since the Internet itself.

A blockchain is essentially just a record, or ledger, of digital events — one that’s “distributed,” or shared between many different parties. It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased. The bitcoin blockchain contains a certain and verifiable record of every single bitcoin transaction ever made.

If blockchain is as simple as the analogy above, why does discussion around it still seem like the domain of uber tech nerds and crypto-anarchists?

The problem is that, for most people, the concept of blockchain is intrinsically tied to the digital currency bitcoin — a fairly complicated and highly controversial system. Some people think bitcoin is a silly fad, destined to die and burn a lot of people’s money on the way. Others believe it will soon overthrow the world currency systems, ushering in a new era of democratic finances and distributed power. The value of bitcoin compared to other currencies has fluctuated wildly in recent years. And then there’s the fact that bitcoin helps to enable a multibillion-dollar global market of anonymous purchases, including illegal drugs, weapons and worse.

Controversial, to say the least. For non-experts, wading into this kind of debate seems daunting.

But here’s the thing: The blockchain itself is shockingly uncontroversial. Regardless of his or her opinion on the future of bitcoin, nearly everyone agrees that its most fundamental innovation has worked flawlessly. It allows total strangers to hold and exchange digital money in a completely transparent way — without having to trust each other or any central authority.

What is a blockchain? Essentially, just a record, or ledger, of digital events — one that’s “distributed,” or shared among many different parties. It can only be updated by consensus of a majority of the participants in the system. And, once entered, information can never be erased. The bitcoin blockchain contains a certain and verifiable record of every single bitcoin transaction ever made.

In the falling-piano analogy, the “bystanders” who agree on blockchain events are actually different computing nodes, geographically and computationally isolated from each other. For the lie-detector test, they show a “proof of work” — a cryptographic process for proving that the computer arrived at the correct outcome in the correct way. Falsifying events in the blockchain would be equivalent to getting more than half of the people who saw the piano fall to all lie in the exact same way, at the exact same time, without any ability to coordinate beforehand.

In short, it can’t be done.

This can have an incredible effect. It allows people to know for certain what is happening in the digital world. Today, every interaction you have online relies on a central trusted authority. No matter what you do online, you’re trusting someone to tell you the truth — whether it’s your bank giving you your statement balance, your email service provider telling you your message was delivered, or your antivirus software assuring you that everything’s A-OK.

In fact, there’s always the risk that a single provider of information could lie, or simply be wrong. That’s why Internet security is such a disaster today; we’re trusting sources that can be hacked, manipulated or compromised. And increasingly we’re trusting them with our most precious personal data and life events.

No matter what you do online, you’re trusting someone to tell you the truth — whether it’s your bank giving you your statement balance, your email service provider telling you your message was delivered, or your antivirus software assuring you that everything’s A-OK.

The blockchain could change all of that. It sounds incredible, but by enabling this distributed consensus, it can actually create a true record of events, past and present, in the digital world.

Crucially, it does this without compromising privacy. You can record the fact that the event happened, and even that it happened correctly, without exposing confidential details about the subject matter or the parties involved. This explains why bitcoin enables black-market transactions; despite the public nature of the ledger, the users themselves can remain completely anonymous.

But ultimately, the good here far outweighs the bad. For example, one key emerging use case of the blockchain involves “smart contracts.” You could rely on the decentralized network to confirm that a contract of any kind was executed properly (or even to execute it automatically), without revealing any confidential information about the parties or the transaction. The team at Ethereum, a startup that launched in March, has built a scripting language to enable this. The implications for trust and transparent business dealings are simply enormous.

The financial world has finally started to move beyond the bitcoin hype, as some of the world’s biggest banks begin to research blockchain applications. The country of Estonia, which secures much of its banking infrastructure with a blockchain, boasts the lowest rate of credit card fraud in the euro zone. And startups like Bitreserve are enabling completely free online-money transactions, without the volatility and risk associated with bitcoin.

We can think even bigger — let’s put health records, voting, ownership documents, marriage licenses and lawsuits in the blockchain. Eventually, every dataset and every digital transaction could leave a “fingerprint” there, creating an audit trail for any digital event throughout history, without compromising anyone’s personal privacy.

In that sense, if the blockchain lives up to its potential, it could introduce a level of democracy and objective “truth” to the digital world that even the physical world can’t match. Its promise involves a future in which no one has absolute power online, and no one can lie about past or current events. This future has yet to be realized, but every day more of the smartest people in technology are jumping on the bandwagon, and believing that one day, it will be possible.


#2

I agree with you. I think that Blockchain is great. I mean it seems like soon that most places will end up using it. I was reading an article not too long ago that said in about three years time we will see just about everyone using it.


#4

Loved your article (mcupin820), it has seriously rethink Blockchain’s potential and anyone interested in blockchain should also consider it on the technical side, Hope this article helps :grin:


#5

Blockchain technology was originally developed for financial transaction involved in Bitcoin, since financial transactions require best of security. However, the concept of distributed database, public ledger and time stamped unalterable data called “block”, utilized in block chain solutions have found relevancy in other industries like healthcare, clinical trials, supply chain etc., that require frequent exchange of data between different stake holders.In such industries, keeping track of each transaction and verifying its authenticity is difficult. Blockchain makes every computer (node) in the network liable for verification of a transaction and there is no single point of failure. Hence, altering or stealing data is almost impossible. No doubt, Blockchain is technology of the future and would find utility soon in other industries too.To know more about blockchain technology and its implementation in various industries, please visit Sofocle.


#6

The Bitcoin application allows for two types of users, whom we will refer to as participants and miners. Participants are individuals who want to use Bitcoin as a currency, sending and receiving Bitcoins in exchange for goods and services.
While blockchain has gained significant popularity due to its role in cryptocurrency (e.g., Bitcoin, Ethereum, etc.), industries as disparate as real estate, healthcare, insurance, systems of records, and even sports ticket sales may be disrupted by blockchain.