There is a great deal of recent interest and buzz around blockchain technology, first invented in 1991 as a way to digitally stamp and authenticate documents preventing tampering or backdating. In 2001, blockchain technology expanded the financial world when it was adapted by Satoshi Nakamoto to create Bitcoin. But blockchain is more than just a cryptocurrency tool.
The reason there’s so much buzz around blockchain currently is the wealth of options it provides within various industries to secure data and processes. When Deloitte surveyed executives who had some knowledge of blockchain, more than a quarter said they view blockchain as a one of the top five priorities in 2017 and 42% “believe it will disrupt their industry.”
According to a 2017 blockchain survey by Deloitte, “Nearly 40 percent of surveyed senior executives still have little or no knowledge about blockchain, while others executives place it among their company’s highest priorities for 2017.”
So what exactly is blockchain and why is it valuable?
What is a blockchain?
There’s a valid reason for confusion as to what blockchain is, “The term has become so widespread that it’s quickly losing meaning.” But despite some claims that “there is no universal definition of a blockchain, and there is widespread disagreement over which qualities are essential in order to call something a blockchain,” there is still a widely held consensus and growing uniformity around the new technology.
A blockchain is a transaction that is made of blocks of information that are secured in a tamper-resistant chain and dispersed among a network.
Dr. Adrian McCullagh, a blockchain lawyer, further describes blockchain as simply “a special type of data repository that is in itself tamper evident.” It is a way to record and organize information, like a ledger, while simultaneously making the data contained secure and resistant to tampering.
“Current business ledgers in use today are deficient in many ways. They are inefficient, costly, non-transparent, and subject to fraud and misuse… However, by using blockchain-based shared ledgers, where transactions cannot be altered once validated by consensus and written to the ledger, businesses can save time and costs while reducing risks.”
Blockchain — Built Secure
Blockchain’s three primary security features are, in a way, what defines it: a collection of unique hashes, proof of work, and a distributed network.
In making a blockchain, one starts with the first block of information, called the genesis block. Like all blocks, this block has its own unique hash which identifies the contents of the block. As information is added to the block, the hash changes.
Information cannot be removed from a blockchain. To change information, new information must be added. Each time data is added to the chain, a new block is made in the chain. That block will have the hash from the previous block and the new hash of the current block.
Proof of work
As these blocks are created or added to their blockchain, they are distributed throughout a peer to peer network. Each node then verifies the block to make sure it hasn’t been tampered with. If the hashes check out, each node then adds the block to their chain creating consensus.
Finally, a mechanism called proof of work is used to purposefully delay the speed at which new blocks can be made. Because proof of work takes time, it increases the difficulty of tampering with the blockchain.
In order to tamper with information in a blockchain, information in at least 50% of the blocks across the network would have to be changed simultaneously adding both the old and current hashes. But as proof of work takes time, it—along with a widespread network and a greater number of hashes in a chain—increases the security of the information.
If information in a block is tampered with, it changes the hash and therefore affects all the following blocks in the chain, thus making the chain invalid. The most vulnerable phase of a blockchain, therefore, is early in its lifecycle because there is not a chain of hashes to protect it from tampering.
A quick glace toward the future
The buzz about blockchain isn’t just about cryptocurrency nor its potential as tamper-proof data storage. Blockchain has the potential to decentralize trade, “democratize and expand the global financial system,” improve protection against corruption and exploitation, expand markets, and not just completely overhaul how things are recorded and organized.
Blockchain technology has been around for almost three decades, but we’ve only just begun to realize the breadth of things it can do and the disruption it can create. There’s a reason there is so much buzz around it; despite its crytpocurrency connection, blockchain’s true potential is only starting to be developed.