Blockchain - The Future of Safe Record Keeping Explained
The blockchain is a new technology for reliable record keeping. It was first published in 2008 as part of the Bitcoin protocol. As the popularity of Bitcoin grew, the awareness of the underlying technology and many other uses have been devised. Over the last few years, blockchain technology has become a subject of intense ongoing research. Many alternate cryptocurrencies ("altcoins") have emerged, as have countless other applications.
What is a Blockchain?
A blockchain is a system intended to store data in an immutable way that is accessible to everyone in the public. It provides means to achieve consensus within a network. This eliminates the need for a central authority to provide the final say over which information is right in case of dispute. For example, information on who owns a particular currency unit can be made secure and unalterable. This information will be released, bundled in a so called "block" on a blockchain. That way each other participant of the network can check the information. In the case of cryptocurrencies, it is possible to determine if a unit of currency is valid and hasn't been spent already ("double-spent"). All transactions including that unit can be found on the blockchain. Cryptography protects the blockchain from tampering. Moreover, it is also stored locally on every machine participating in the network.
What makes a Blockchain safe against tampering?
Blockchain uses cryptography to link blocks of data into a chain that can be stored and checked for validity. All blocks incorporate hashed data from the preceding block. That includes even the data the preceding block stores about its predecessor. This concept of data storage guarantees a unique order, which is always correct. If a block's data is changed, the hash in the next block becomes invalid, immediately exposing any falsifications. Compromising a block would also render the following block invalid, breaking the entire chain. The hash functions used to store this linking data make it impractical to compromise a block that matches the next block's hash data. Compromising a block would falsify the entire chain following that block. That way creating a manipulative blockchain becomes a very hard undertaking for any potential attacker. This, in turn, allows a public blockchain to make anything published onto it permanently retrievable and thus verifiable by anyone with access to it.
How would a Blockchain handle attacks?
To make it even harder to tamper with a blockchain, it is not stored in one single place. It is distributed in a peer-to-peer network, allowing a large number of copies of the blockchain to exist. The network then continuously and automatically checks if consensus can be achieved on the state of the blockchain. Should someone try to publish an altered version of the blockchain and connect it to the network, it would automatically reject it, as the majority of the copies disagrees with the altered one. To successfully publish a compromised blockchain of Bitcoin as an example, an attacker had to gain access to the majority of the processing power securing the network ("51 % Attack"). Thus, he had to manipulate more than half of the participating computers or nodes in the network to make his version of the chain generally accepted. With an increasing amount of nodes in the network, it becomes difficult to gain control of enough nodes to carry out a successful attack. This is further impeded by the fact that the nodes are distributed across a wide geographical space and on different software platforms and versions. A great number of nodes can be taken down or compromised before a blockchain network becomes vulnerable to this kind of attack.
How does Blockchain enable cryptocurrencies?
The immutability of the stored data makes blockchain the breakthrough technology that enables cryptocurrencies in the first place. Being able to publically verify the transaction history of each unit of currency eliminates the problem of double-spending. This ensures that each unit remains unique, and thus retains its associated value. This safety does not come at the cost of privacy: users can be perfectly anonymous while using the blockchain for their financial transactions. It is just the units of currency that can be tracked.
What further advantages does Blockchain provide?
Distributing a secure record frees the participants from needing to trust a central authority. Since a network is capable of reliably reaching consensus on the authenticity of data on a blockchain, it is not needed to label one copy to be the reference. This removes the power someone holding that reference would have since it could dictate false data to the others. In theory, a bank could simply decide to move funds and declare the new state to be valid. They ultimately hold power over the balance of all accounts. With blockchain, no single entity holds this much power. This is what cryptographers call a "trustless network". In cryptography, trustless actually means a good thing. It means you don't have to trust any other parties to act in the general interest. Rather, almost any attempt to compromise the record is exceedingly difficult. Let's go back to the example of the banks again. Instead of trusting your bank to keep your money safe, you trust the blockchain network. The reason is nobody is capable of compromising your funds on the network within a reasonable degree of probability. This goes a long way in making blockchain powered applications impartial and independent.
Other advantages are the transaction speed and the immutability. Bank transactions usually take days and can be reverted. Credit card payments are faster but can be refunded weeks after the payment. For vendors, who are dependent on the payment for the goods the sell, this is a severe issue. A blockchain payment happens within minutes or even seconds and is final.
- No need for a central authority
- No participant wields excessive power
- Eliminates the need for trust in individual entities
- Transaction speed is much faster
- Transactions are immutable, thus final
What chances does the Blockchain Technology offer?
Decentralized immutable records in the form of blockchains offer a unique chance to replace resource-intensive centralized authorities. It enables information exchanges and transactions to be documented safely and peer-to-peer, eliminating the costly process of authentication via third parties. The strong reduction in costs, coupled with an increase in security, can make financial systems more accessible. Especially to those who are at a disadvantage measured against big players in current systems. It also can enable safe and trustworthy microtransactions and microcredits. Removing political power over held assets can help to make people more independent and free. Their data is stored with optimum protection against data loss since countless copies of the blockchain reside in the network. The increase in safety and accessibility of financial services of the poor is speculated to be a major factor in reducing global poverty.
Another main goal that can be achieved with blockchain is the reduction in paperwork and communication required for trade and supply chains. Trade benefits immensely from the reduced costs of communication and shorter delays offered by blockchain.
Supply chains benefit immensely from the traceability and accountability of all actors that can be achieved with blockchain-based solutions. If a product's whole journey can be traced, not only can issues be traced to their origin quickly to remove faulty products, but tampering and misuse in the supply chain can be detected and stopped. This ensures more transparency than ever for customers, at reduced costs. For example, safe supply chains in the pharmaceutical industry can help avoid counterfeit products to infiltrate the market. Moreover, food retailers can react more quickly to contaminations and trace the origin to remove compromised products.
Additional use cases for Blockchain Technologies
Blockchain can power a wide range of applications where immutable proof of validity is required. This includes financial transactions, storing medical records, records of property, securing supply chains, and energy trading on power grids. The function of blockchain as a distributed ledger potentially makes anything requiring provability more secure and independent.
Further information about blockchain and cryptocurrency can be found in the PiGrid Shop under "Learn more".
Did you like this article? Share it with your community.