Tech Word For The Week is a weekly series where we look to explain commonly used words in the tech ecosystem in a simple, engaging way.
In recent years, blockchain has garnered a lot of momentum. This is partly because of the rise of Bitcoin, Ethereums, and other Altcoins, but Blockchain is much more broader than that. It’s a technology that will transform different sectors, how data is saved, (of course) transactions between individuals and corporations.
Blockchain is a digital ledger of transactions decentralised, duplicated and distributed across different networks of computer systems. Data recorded on a blockchain is almost impossible to change or hack.
A “block” contains one transactional record. Several “blocks” stringed together through peer-to-peer nodes is known as a “chain.” The storage system/ database where all of the transactions are entered is also known as a “digital ledger.”
Think of blockchain as a Google spreadsheet which is shared among different computers in a network (but in different locations). All transactional records are shared and stored on this digital ledger. Each of these computers can see the transactions but they cannot alter it.
How It Works
Many people assume that the blockchain is restricted to Bitcoin and other cryptocurrencies. But it is much broader than that. It can be deployed in numerous industries because of its qualities. However, before we go into that, let’s examine the underlying technologies that powers Blockchain.
Blockchain is made up of cryptographic keys, on a peer-to-peer node which contains a shared ledger and is a means of computing, recording, and storing the transactions on the network. You might have to go over that again. However, the three keywords are: Cryptographic keys, a peer-to-peer node, and the distributed/ shared ledger.
Blockchain cryptography contains two keys – Private key and Public key. The keys help to perform successful transactions between two parties. Each party has these two keys that they use to produce a secure digital identity reference. The secured identity is a vital part of Blockchain technology. In cryptocurrency, this identity is known as ‘digital signature’ and it is used for verifying and controlling transactions.
The digital signature is merged with the peer-to-peer network. The peer-to-peer network is a large number of individuals who act as authorities and use the digital signature to reach a consensus on transactions, among other issues.
When the network authorises a deal, it is certified by a mathematical verification, which results in a secured transaction between the two network-connected parties. Blockchain users employ cryptography keys to perform different types of digital interactions over the peer-to-peer network.
No single person can claim ownership to inventing Blockchain. At different times, people contributed to what we now call Blockchain. The first person who ever contributed to Blockchain was a cryptographer named David Chaum in 1982. He proposed a blockchain-like protocol. In 1991, a physicist Stuart Haber and cryptographer W. Scott Stornetta released a research paper titled, “How to time-stamp a digital document.”
This simple version of Blockchain was later used by a computer scientist named Nick Szabo in 1998. He created “Bit Gold,” which was an early version of digital currency. The whitepaper he published alongside proposed a time-stamped hash chain (blockchain) that can solve the double-spending problem using hashcash. It was an early version of the Proof-of Work system now used to limit spam on internet forums and emails.
Fast forward to 2000, Stefan Konst initiated the idea of cryptographically securing chains. He published a research paper called “Secure Log Files Based on Cryptographically Concatenated Entries.” The model he presented allowed entries in the chain to be traced back from the beginning to prove the authenticity. This is a replica of the model we now use in Bitcoin and other cryptocurrencies.
In 2008, Satoshi Nakamoto released the whitepaper of Bitcoin, by accumulating all the ideas of a distributed ledger with the secure cryptographic functions, presenting a practical use-case for blockchain. Since then, the use of blockchains has exploded via the creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.
For all of its complexity, blockchain’s potential as a decentralized form of record keeping is almost without limit. From greater user privacy and heightened security to lower processing fees and fewer errors, blockchain technology may very well see applications beyond those outlined above. But there are also some disadvantages.
The Pros of Blockchain
- The removal of human involvement in the verification of transactions improves the accuracy of Blockchain.
- Significant cost reduction by eliminating third-party verification.
- The decentralization of Blockchain makes it difficult to tamper with.
- Transactions on the digital ledger are secure, private, and efficient
- It provides an alternative to banking and a way to secure the personal information of citizens from countries with unstable or underdeveloped governments
- There’s a huge technology cost associated with mining bitcoin
- A low transactions per second
- History of illicit activities, such as use of the blockchain on the dark web
- Uncertainty caused by varying regulations of the jurisdiction of nations
Blockchain is still in its early days, but as more individuals and corporations discover its potential its adoption will continue to increase. The technology stands to make business and government operations more accurate, efficient, secure, and cheap, with fewer middlemen.