Blockchain is an online record of transactions backed by cryptography. It’s at the heart of currencies like Bitcoin and can be used to document financial transactions, the movement of goods or services and or exchanges in information.
A blockchain is, very simply, an online record of transactions. They could be transactions for:
We explore this idea more fully and explain why it has so much potential.
Taking the above definition and building on it, the blockchain is a growing set of records, bunched together into ‘blocks’ which are linked together using cryptography.
So we know it’s a way to keep records, but there are a lot of clever ideas built on top of that. The first is about how blockchain keeps those records. Most people refer to this as the distributed ledger system or DLT.
In a distributed ledger, a record of every transaction is held in many places at the same time.
This makes a blockchain fiendishly difficult to hack into and change records as it would require someone to change every single record at the exact same time.
There are a number of key factors that make blockchain so exciting.
The internet today is mostly centralised. What does that mean? The vast majority of the services and sites you visit store and keep their data in a database. Your bank, Netflix, Google, you name it, they all operate a centralised system.
In the present centralised system there are a number of challenges.
🔓Security - If these centralised databases get hacked into, they can expose all the data at once. We've seen that happen more and more recently.
💵 Cost - Building centralised systems is often expensive as a company needs to provide all the digital capacity to make a system run smoothly.
📊Your data - In these centralised systems, your data is not your own, and is often monetised by the networks you give that data too.
🌫️Transparency - How information gets used, by whom and for what is a bit of a grey area today. The decentralised internet can change that!
There have been decentralised systems on the internet. Remember Limewire and Napster? They were examples of decentralised services.
But they had a flaw: those services weren't very good at preventing duplicates of files. This is called the double spending problem .
Your bank solves that problem by checking with its centralised database to see if an asset has been spent or used more than once. The blockchain solves that without the need for a centralised database.
The idea of the blockchain has been discussed among cryptographers since the early 90s. But it wasn't until the mysterious Satoshi Nakamoto came along that blockchain as we understand it today was created. Bitcoin is a system built on blockchain.
Find out more about who is Satoshi Nakamoto
Today when we buy things online, there are a number of actors or points we have to trust. Whether it be a seller, a payment system, a bank or even a website. A blockchain doesn't require so much trust, allowing anyone to exchange goods or services without a third party.
Many of today's networks are controlled by middlemen or agencies that often charge for the flow of information. In a blockchain there is no such control, which can lead to lower costs and speedier transactions.
In a public blockchain like Bitcoin (there are private blockchains, but we'll explore that another time) anyone can see transactions, making it easier to track the flow of goods or services.
Because blockchain is a decentralised system, it means no one person or group can control the system, meaning things can only change via consensus.
See more about IoT and blockchain with our article on: IOTA
Blockchain started with Bitcoin, but there are no limits to where this technology could go in future.
Our site is full of these applications so take a look around.