A blockchain is an immutable public database for storing information.
Founded in 2009 by the mysterious, and as yet unidentified, ‘Satoshi Nakamoto’, Bitcoin is the first known implementation of blockchain technology. Bitcoin is a digital cash system which allows users to transfer units of value (ie. money) without any third-party intermediary, such as a bank.
Decentralised Distributed Database
The Bitcoin blockchain stores a very limited kind of information, that which relates to Bitcoin transactions. However, blockchains can be used to store all kinds of information and have myriad applications. They run across huge networks of independent computers (called nodes) rather than on single servers or from a centralised point of operation. A blockchain is therefore distributed and decentralised, removing isolated points of failure and vulnerability that are inherent in other networks (think Facebook, Equifax, HSBC etc).
What’s special about blockchains isn’t that they store information but how they store information.
Before any new information can be added to the blockchain it needs to be verified and confirmed. This process is referred to as consensus. To reach consensus, 51% or more of the network’s nodes must agree that the entry is valid. Once they come to a consensus (group agreement) of 51% or more, the entry is verified and stored in the public database. Consensus on a transaction is irreversible and once added, will remain publicly visible on the blockchain indefinitely.
The only way to add fraudulent transactions to the blockchain is to occupy at least 51% of the nodes in the network so that you can force an agreement and come to a false consensus. However, this is so expensive, difficult and time-consuming that it becomes futile.
The process of validating transactions is also known as mining and is an incentivised task. As you can see, the consensus that nodes must come to plays a huge part in the mechanics of blockchain technology. It’s fundamental.
Nodes in most blockchains are rewarded with the cryptocurrency that runs on their blockchain. This is because mining/validating requires computational power (and thus electricity), meaning an incentive for the nodes is required.
The true scope of blockchain technology’s potential has yet to be quantified but myriad applications have already surfaced. The areas already of the fledgling innovation are as diverse as digital identity authentication, tamper-proof voting, banking and payment services, cybersecurity, insurance, supply-chain management, e-commerce, insurance healthcare and real estate.
Blockchain is a revolutionary technology that will is completely evolving modern-day life as we know it. It has courted more global attention (good and bad) than any other technological development since the advent of the internet itself and its influence is showing little sign of waning. If anything, you can expect this groundbreaking data management system to make increasingly disruptive waves well into 2019 and beyond.
To read the full What is Blockchain Technology? guide on which this abridged version is based, head over to Tokenleak.com