Unless you’ve been living under a particularly large rock for some time, you’ve heard the term “blockchain” recently. It is usually used in relation to cryptocurrencies like bitcoin, but is often not explained well, particularly by mainstream news sources. What is blockchain technology and why does it matter? Is it only limited to providing a supporting framework for the growing number of cryptocurrencies in the world? Actually, blockchain technology has immense potential that goes far, far beyond bitcoin and the like.
What Is Blockchain?
Blockchain is the name for a specific type of technology called a secure ledger. It’s sort of an indelible book of receipts that records transactions, senders and receivers, amounts, and logs other data, and then stores it safely. That might not sound like much until you really start to dig into things, though.
The Data Structure
A blockchain is really nothing more than a database – a receptacle into which data is placed for storage and later access. However, the structure here is very different from any other database formation in the past. In fact, this is where it gets its name. Data is stored in blocks, built up successively. While those blocks stand alone, they are also interconnected. Each preceding block includes a bit of code that validates the following block, and so on. Any attempt to change data within an earlier block means that the later blocks no longer match. The immediate upshot of this is that unauthorized attempts to change data (hacking, data theft, etc.) can be recognized and stopped.
Distributed
Blockchains are not stored on any central servers. You cannot point to a server in the cloud and say that such and such blockchain is stored there. It’s actually a distributed ledger, meaning that parts of it reside on all of the computers that make up the blockchain network. It’s a bit like the Internet in the way it works – there is no single entity that houses the Internet. Rather, the Internet is a collective. It’s a combination of all the various servers that make up the global network. Blockchains work in a similar way.
Note that this differs from a decentralized ledger system. In a distributed ledger system, all ledgers on all member machines reflect the same information at the same time, and are updated in real time. In a decentralized network, changes can be made to individual ledgers, and that can wreak havoc on the network as a whole when it is revealed that multiple ledgers no longer match.
Why Does Blockchain Technology Matter?
So, why does this technology matter to the everyday individual? Obviously, they form the backbone for cryptocurrencies, but that is just the tip of the proverbial iceberg. There’s much more to it. In theory, blockchains could be used for just about anything where group consensus is needed, where security is of paramount importance, and real-time information updates are vital.
There is ongoing research and development into other applications for this technology beyond cryptocurrency, although no public-facing technologies have been released as yet. Some of the potential industries that might benefit from blockchain technology include:
- Finance
- Real estate
- Commerce/ecommerce
- Government records
- Law
Those are just a small fraction. In reality, this technology bears on just about every industry and sector in the world. There is even speculation that the Internet itself could ultimately be replaced by a blockchain.
With that being said, there are challenges yet to be overcome. For instance, sensitive information may not be able to be shared in a distributed manner. Antitrust concerns exist, as well, as do regulatory worries, fears about the erosion of intellectual property rights, and even debate about whether smart contracts are in fact legally binding outside the world of the blockchain.
