Behind the Buzz: The Basics of Blockchain, a Digital Democracy

  • iReviews
  • July 17,2017
Advertising Disclosure: Many or all of the companies featured provide compensation to us. These commissions are how we maintain our free service for consumers. Compensation, along with hours of in-depth research, determines where & how companies appear on our site.

Blockchain is revolutionizing many industries. It is becoming more important to understand what blockchain is, how it works, and what its ramifications are. Below, we’ve simplified the concept and history behind blockchain for you.

What Is Blockchain, and Where Did It Come From?

Functionally speaking, a blockchain is a shared public digital ledger of transactions. It can record any type of value-based transaction. It is also decentralized, making it virtually hacker-proof. Because of its versatility and robustness, blockchain has transcended being only a tool for finance. Practically any industry can utilize it.

 

Satoshi Nakamoto first conceived and implemented blockchain as a way to record transactions of the now famous cryptocurrency, Bitcoin. Nakamoto also designed Bitcoin itself. The crazy part of this story is that nobody knows who Satoshi Nakamoto is, or if it is even just one person. Basically, in 2008, Nakamoto published a paper on the internet that described Bitcoin, and then released corresponding software and a network to trade the currency on in the following year.

 

Since Nakamoto first introduced blockchain to the world, it has been used in various cryptocurrencies, Ethereum (smart contracts), Namecoin (replacement for the internet’s DNS system), and renewable energy among many other things. Any centralized platform that has transactions like Amazon, Dropbox, Ebay, and PayPal could theoretically utilize blockchain. This would essentially drive down transaction costs. Blockchain has made many industries ripe for disruption. Once we examine the technical aspect of blockchain, it is easier to understand why it is spreading through numerous fields and industries. So let’s dive right in.

Where Did the Word ‘Blockchain’ Come From?

Technically speaking, a blockchain is a distributed database that maintains an evergrowing list of transaction records known as blocks. Each group of transactions creates a new block to record it. This new block contains an encrypted signature at the end of the block which also includes a timestamp and link to the preceding block. This effectively links or “chains” the blocks together and establishes an unchangeable permanent record of changes to the database.

 

Anyone in a peer-to-peer network utilizing blockchain can review these blocks. Each participant in the network serves as a node. Nodes act as both clients and servers. Besides taking part in transactions through the network, each node also stores a copy of the entire blockchain. No central version of the blockchain exists. No one participant can completely control a transaction or edit a block across the entire network. A transaction is only verified and recorded as a block when the majority of the network nodes agree that the transaction is valid.

Power in Numbers

An analogy to the above protocol would be like using Google Docs or Dropbox in a collaborative project. Each member has the most recent version of a file and there is no central version. In a way, each member has the master copy. While they can review this master copy, to actually make a change to it requires the approval of the majority of the group. Only then will the revision occur, which replaces the copy that each member has.

 

To make things harder for hackers, any retroactive alterations to a block requires revisions to any blocks after it as well as the preceding block. Of course, each of these changes would also require the approval of the network majority. Because millions of computers host a blockchain at the same time and its data is public, even if a hacker made alterations to a hundred copies of a blockchain, there could still be thousands of copies out there to verify which transactions were valid. Blockchain’s transaction protocol and decentralized nature make it virtually incorruptible.

A Digital Pocket Knife

In today’s world of constant cyber attacks and identity theft, blockchain remains a secure way to store values like financial transactions, identities, credentials, identities, and many other forms of important information. Companies are using it to track shipping logistics, improve autonomous driving, and fight fraud. Governments are using it to manage basic income pilot programs and track supplies and rations for refugees. Many think it will also serve to improve tax processes, voting in elections, and even aid in making quantum computing a reality. The technology has not yet reached its full potential, and right now, the possibilities seem endless.

 

Sources: BlockchainHub, Blockgeeks, Wikipedia