Often confused as being synonymous with bitcoin or other cryptocurrencies, blockchain is the underlying technology upon which the cryptocurrency concept was built. Blockchain first made its debut in 2008, and its relationship to bitcoin has been compared as such: blockchain is to bitcoin, what the internet is to email.
As blockchain developed, people began to realize it had applications beyond bitcoin. The continued discovery of those applications has become the catalyst of the technology revolution that we find ourselves in today – one that is affecting all industries as they find a way to incorporate blockchain. For example, a 2017 study by IBM found that 16% of surveyed healthcare executives had plans to implement a commercial blockchain solution that year while 56% expected to by 2020. Also notable, financial institutions are spending millions on developing blockchain applications. Two CEOs of major European lenders claim blockchain “will underpin the financial industry in five years.” Still, as we make our way through the blockchain renaissance, there are many questions, the simplest being: what is blockchain?
In short, blockchain is a digital ledger consisting of recorded transactions. Transactions are recorded on the blockchain using cryptography. Cryptography consists of two digital keys: one digital key ensures you are the only person who can enter a transaction into the blockchain, and the other digital key lets another person confirm it was really you who added the transaction.
What makes blockchain unique is its decentralized nature and security. Typically, transactions are verified by a centralized authority (i.e., a bank, the DMV, a credit card company, etc.). However, transactions on the blockchain are verified by the consensus of several users. In other words, the information is distributed to multiple computers, each having its own copy of the transactions. As such, no single party controls the information.
Also, blockchain has sophisticated security features, including its use of hashing and its internal construction which make it impenetrable. Hashing is the process of reducing data to a random set of characters. In blockchain, hashes are linked together so any minute changes are visible in the block housing the hash and all other blocks added later. Blockchain also consists of an “append-only” construction, which only permits the writing-in of new information, with the previous information being impervious to edits, adjustments or changes. Therefore, blockchain is often referred to as being immutable.
There is no denying that the intricacies of blockchain are extremely complex and much more in depth than the high-level perspective provided by this entry. Perhaps the important takeaway is that blockchain provides an unparalleled level of trust and security among parties. For that reason alone, it is easy to see how this technology will impact the way we do business.