Blockchain is one of the hottest technologies around right now. However, there is as much confusion as there is hype around what Blockchain actually is and what it can do. Here is a short explanation on what blockchain is and how it could revolutionise the
Blockchain is one of the hottest technologies around right now. However, there is as much confusion as there is hype around what Blockchain actually is and what it can do. Here is a short explanation on what blockchain is and how it could revolutionise the world.
What is it?
Blockchain and its associated cryptocurrency, Bitcoin, were invented in 2009 as an alternative system that sought to eliminate the middleman from online financial transactions. The middleman in financial transactions usually validates the transactions and guarantees that one party can ‘trust’ another. In the physical world, if I give you £20, you know that I gave you that money; you can trust the transaction took place. You physically have the money and I do not. But, digital money is not like physical money; the middleman has to exist to stop me from copying money or sending money I don’t have for example. There needs to be a record of what is transferred and who to – banks play this role of a central ledger of all transactions.
Blockchain offers an alternative to trusting a central third party, as it is a secure publicly owned ledger that records every Bitcoin transaction that occurs within the system, providing distributed ‘digital trust’. It eliminates the need for everyone to trust a single intermediary, which can be problematic as they can falsify or manipulate records at will (forgery), cause unnecessary delays (closed at the weekend) or implement a transaction fee (50p charge).
So how does it work?
Very simply, let’s take 5 computers and call it a blockchain system. If computer 1 sends a Bitcoin to computer 2, that transaction would be sent to computers 3, 4 and 5 to verify. Once at least 51% of the computers on the system agree that the transaction took place and all the details are correct, the transactions would be added to the public ledger – the blockchain – that is shared between all of them. Each time a transaction is processed, a new data ‘block’ is added to the chain, which contains a record of that transaction. Each block’s code links back to another’s, making in nearly impossible to alter the code of one without altering the whole chain, giving a huge advantage by being inherently secure by design.
The computers that process the algorithms to create the blocks are known as ‘miners’. Their incentive and reward for this is bitcoin, which is given randomly to one of the computers. In summary, it is an autonomous, decentralised, secure system for financial transactions.
A number of new blockchains have emerged recently, all of which take the principle of a decentralised database and add to it. One of t