Everyone's sitting around talking and typing about their blockchains. But what is blockchain? No, it's not a chain of bricks. Let us do our bit to demystify what is really a familiar concept.
A blockchain is just a way of maintaining a decentralised ledger, where everyone knows exactly what each other has, and its integrity can't be compromised.
Whoa... not helpful?! In Tic:Toc speak, blockchain is essentially technology that allows public transactions to take place. It's as if Jack hands Jill a wad of cash while a stadium of random people watch and verify that, yes indeed, that transaction did in fact take place. And it's live streamed to more stadiums of random people all over the world so they too can give verification.
Still confused? Let's try an analogy: if you were an eel salesperson in medieval times (stay with me here), travelling from village to village you'd have a ledger with every eel merchant in town. This ledger would detail all your transactions about the quantity of eels you sold, their quality (i.e., bad or very bad) and so on. Each eel merchant's ledger represents a 'source of truth' of sequential transactions about your eel sales; or in other words a 'block'. If you put all the eel merchant ledgers together you'd form a 'chain'. And that's all there is to it - a distributed ledger system.
"Please don't sell me."
Of course, today's blockchains are very sophisticated and rely on computing power and cryptography. But the premise is an old one. It's just that over the last fifty years or so we've become accustomed to information being in one spot: bank accounts, lands titles, you name it! All of sudden blockchains will 'unchain' us from this centralisation and give us confidence and transparency when 'trust is a must'.
The nitty gritty.
Hands off your eels for a moment - because it's time to talk about how they work (blockchains, that is - not eels). So, we know that a blockchain is an immutable sequence of blocks, chained together with each block containing data about something…right? The next key piece is to understand how the blocks are connected. They rely on an algorithm that converts the data to an 'efficient' representation. This is known as a hash. Each block contains the hash of the previous block, and it is this critical property that makes blockchains secure. Corrupt one block and all those up the chain are corrupt too.
So why do we even need new blocks? Why can't we just store information on an existing block? To create 'value' within the blockchain new blocks must be 'mined'. This is not meant to be easy otherwise the blockchain's value would be quickly eroded. Never fear, the cryptographic algorithm is here! ‘Miners’ compete to find a value that solves a verification algorithm known as 'proof of work'. Given how important this check is, the algorithm must be difficult to solve but easy to verify.
People and programs mine blockchains in order to create new transactions on a block. Take Bitcoin as one well-known blockchain. If miners solve the algorithm and therefore demonstrate a proof of work, they’re personally rewarded with a small portion of a new globally-available block in the chain. Then people can transact against that block, and so the dance continues.
No, not that kind of mining. That kind of mining.
Blockchains are constructed using not only proof of work systems validated by computational mining work. They can also use ‘proof of stake’ systems where all transactions require rigorous validation via other truster members of the blockchain. These methods can also be utilised together for additional security!
One more important thing - blockchains are decentralised...shrug? Users of a blockchain form a network. Each member of the network will hold information about the blockchain, such as its blocks, transactions and other members in the network. To make sure things are all kept in line, blockchains use a 'consensus' algorithm.
Implications for the future.
Wondering where you can get yourself a fancy new blockchain? It's probably not worth it! You already are or will be using blockchain technology very soon! You may already own some cryptocurrency such as Bitcoin or Ethereum. If not, you've certainly heard of them and, like us, are excited about cryptocurrencies and what they mean for the economy.
Anywhere that 'trust is a must', and multiple people need to transact, we will no doubt see a blockchain solution. How about a blockchain home loan contract, or land title registration, or logistics, or internet connected devices at home, or even keeping tabs on your own data... you see our point. Opportunities abound in the bold and blocky future ahead of us!