What is the Blockchain?

Over the past year, there has been plenty of buzz surrounding cryptocurrencies such as Bitcoin and Ethereum, and subsequently, blockchain technology. Despite being an integral part of the system, many are still unaware of the function and purpose of the blockchain. Here is a basic breakdown that covers all the facts you need to know.

The basics

The blockchain can be described as a system made up of a large group of computers on a network that continually update a secure ledger. Each machine is known as a “node,” which stores a copy of the complete ledger containing every single transaction ever made. Every time a new transaction is made, it is broadcast to the network before copies on nodes are updated. All changes are linked to the previous block of information, making it easily verifiable by anyone.

Breaking it down into even simpler terms, think of the blockchain as a more elaborate version of Google Docs. A simple document can be viewed at the same time and edited simultaneously by several people. In the same way, the blockchain has no master copy, with all nodes recognized and trusted equally. However, the critical difference is that no records can be erased or altered retroactively without the agreement and collaboration of the majority of nodes.

All nodes verify any transactions or changes made to the blockchain. Image from crypthor.net

How secure is the blockchain?

To date, there is no question about the reliability of blockchain technology. Take Bitcoin as the prime example. Invented in 2008, it has been running almost seamlessly on its own without centralized leadership. This is due to the public ledger being verified by the majority of the nodes, with identical blocks of information stored across the network.

As a result, a single person or entity does not control the ledger, making it reliable and trustworthy. It also prevents corruption of a so-called master copy on a central server, which will then be distributed to all nodes on the network. This prevents the issue of double spending, since a full transaction record is available across the network, making the amount inside any public address accountable to every single node.

Furthermore, there is no single point of failure as the public ledger is identical across every node. This will be the case for any decentralized cryptocurrency, from Bitcoin to Ethereum to Litecoin.

To compare, a website on one computer will contain the same information if it were accessed via a different computer.

The blockchain operates in a similar manner, with the exception that the information cannot be compromised or changed to reflect the ideals of a single individual. In fact, all problems linked to Bitcoin have been traced back to malicious intent or human error instead of inherent flaws in blockchain technology.

Bitcoin is the first real application of blockchain technology, but different companies and start-ups are slowly adopting the idea of an open ledger in various industries, with Ethereum becoming its first rival in 2015. Even progressive governments are also beginning to take note of the potential of blockchain technology, with possible applications in finance, governance, humanitarian efforts and more.

“The distributed ledger or blockchain system of preserving data integrity and security is one of the most promising new technologies to emerge in the past decade,” said Toomas Hendrik Ilves, the former president of Estonia, speaking before the World Economic Forum in 2016.

“Its full potential is only now beginning to be realized.”

Cover image from martechtoday.com

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