Blockchain – What Even Is It?
We are a few months beyond bitcoin’s meteoric rise to national recognition, but the blockchain, aka the technological innovation that facilitates the infamous cryptocurrency, is still looking for an ultimate use case.
When the tech world was first introduced to the Blockchain via an anonymous white paper in 2008, it was not at the forefront of the conversation. Rather, Bitcoin held that title. Literally. The anonymous source released the article: Bitcoin: A Peer-to-Peer Electronic Cash System, under the pseudonym Satoshi Nakamoto, and Bitcoin was born as simply 31,000 lines of code.
Thirty-one thousand lines that leveraged blockchain technology. Thirty-one thousand lines of flawless code created out of anger at the 2008 Financial Crisis. Thirty-one thousand lines of code that would lead to the first peer-to-peer, decentralized digital ledger.
The original ledger had no single location, rather it was the same ledger stored on 200,000 networks, each synchronizing the information in a single, public chain. This ledger links all transactions into batches, also known as blocks, and the blocks simply stack on top of one another as each transaction occurs.
Each time a transaction is made, (for example, if you buy a new TV with $1,000 worth of bitcoin), the corresponding transaction is updated on all 200,000 individual ledgers at the same time. The transaction is also cryptographically secured via Nakamoto’s intricate and ingenious coding.
In laymen’s terms, the buyer and seller in the transaction are each represented by a chain of numbers. These chains are private and can be over 10 digits long, much like a bank account number. When the sale is made, all 200,000 ledgers add the new ID number (Buyer) to the chain of owners for those bitcoins, with this record visible to the public at all times, as it is published across the entire user network. That means, the buyer and seller remain anonymous, and the code prevents any one person from using the coin more than once. The system is designed to prove the buyer is the true owner of the coins, and the seller is the new owner of them in the chain. Because of this extensive peer-to-peer environment, no one can cheat the system and middle-men are eliminated from financial transactions.
However, this blockchain technology goes far beyond cryptocurrencies like Bitcoin. Tech companies and start-ups are looking for new ways to leverage the decentralized network that is a blockchain.In other words, how can this decentralized database be used to both provide and access information securely, from anywhere in the world?
We’re watching with excitement as each new opportunity arises, from small start-ups like Storj’s, a simple file-storage service, to global giants like JP Morgan’s experiment with implementing the blockchain to make the process of buying and trading stocks more efficient. Another potentially game-changing idea comes from Soverign’s open source project, which is leveraging the blockchain to gather votes with the same level of security, theoretically eliminating voter fraud. Going a step deeper is the service, One Name, which is basically a personal blockchain ID service. You would use blockchain technology instead of passwords for your email, social media channels and even your medical information.
In general, these initial examples are simply organizations seeking out potential “problems” that the blockchain can solve, but industry experts are still postulating on what else the technology can do. Like the internet, we may not truly see the full effect blockchain has for another 10 years.
One major downside to blockchain is the time it takes to confirm a transaction. Since so many parties are involved in confirming the ledger change, naturally that equates to longer processing times. Currently, it can take Bitcoin anywhere from 7-10 minutes to confirm a transaction. So the positive of a decentralized database has a pretty large downside, which is the time it takes for consensus is much too long for many databases. Think of a VISA who is confirming around 24,000 transactions per second. The current technology definitely has a gap to solve.
I, for one, am still very excited to continue following the growth and expansion of the blockchain technology. I will hold off on getting into cryptocurrencies not because the technology isn’t great, but because new currencies are being created every week. I also won’t hold off on continuing to watch any start-up that is using blockchain technology in a novel way.
My hypothesis is that you will continue to see growth in varieties of cryptocurrencies and that Bitcoin and Ethereum are not even close to the end. My other prediction is that you will operate something in your personal life using the blockchain without even knowing it in the next 5 years as companies move to this decentralized approach.