We have all heard the term “blockchain” used in recent days, but for most of us we just assume people are referring to Bitcoin. However, saying blockchain and bitcoin are synonymous, is just like saying the creation of the engine is a car. Blockchain is a revolutionary piece of technology in the digital world. The introduction of blockchain will alter the way we trust and disperse digital information for the better. Today, I am going to simplify this complex piece of tech so that the next time you hear this term you will have a basic idea of what is happening.
In the current day and age information is stored on ledgers that are either physical or digital. These ledgers can hold information on houses, cars, medical records, etc. This information is what many people use to make informed purchases. However, these ledgers today are tamper-able. Meaning that entries can be omitted, added or changed. In addition, these ledgers are placed typically in trusted intermediaries such as Banks, Department of Motor Vehicles, Credit Card Companies, or other Trust companies.
The problem with today’s ledger system is not only that they are tamper-able; but the information is centralized in these trusted intermediaries. What’s the problem with centralized information? When cyberattacks occur, vast amounts of information or currency can be stolen with the blink of an eye. For example, Home Depot underwent a cyber attack where 56 million customer’s credit and debit cards were at risk. This centralization of information puts millions of innocent individuals at risk. We currently trust these intermediaries to hold precious information because it has become the most secure way of doing business currently. But this system is flawed and has caused many innocent individuals to lose big time. But how can we change this centralization of information? With Blockchain…
Open Source Ledger, Decentralizing the Risk
Rather than having all information centralized in one intermediary where the risk of cyber attack is extremely high. Blockchain has created a new way for us to store information that disperses the risk amongst the community. One of blockchain’s biggest features is decentralization of open source ledgers. Let’s break down what exactly this means down below.
Decentralization refers to the dispersion of information across all nodes in the community. Instead of having one trusted intermediary to hold all the information, the dispersion of information across nodes minimizes risk. Lets go back to the Home Depot example. If Home Depot had utilized the decentralization of credit/debit card information of customers to each individual customer. The hackers would have had to hack each individual 56 million customer for their information rather than just hacking the Home Depot server itself.
This dispersion creates a much more laborious and time consuming task for hackers. In addition, the security team would have been able to pick up the hackers before they were able to hit a massive amount of customers. The problem with centralization is before any defense mechanisms can be activated, hackers are typically done and out by the time they become active. With decentralization the time it takes to hit the same number of targets is exponentially longer allowing defense mechanisms to be put into place to stop the cyber attack.
Open Source Ledger
Remember previously when we talked about present day ledgers and how they were easily tamper-able, putting the buyer at risk of making an improperly informed purchase? Well thanks to blockchain we will not have to worry about tampering. Blockchain utilizes a system of Open Source Ledgers. This means that all nodes possess a correct copy of the ledger that can be instantaneously accessed by anyone. This ledger is kept up to date with a Consensus Algorithm that is running constantly to ensure the validity of the ledger. This Consensus Algorithm looks for invalid ledgers, when it finds an invalid ledger it omits that ledger and replaces it with a correct copy. This ensures that all information is correct and up to date.
The open source ledger solves the problem of inaccurate ledgers in the current day system. In addition, the time taken to acquire these ledgers is instantaneous. When new data needs to be added to these ledgers it is done in a fraction of the time taken to complete the task compared to the current system in place today. The Open Source Ledger will revolutionize the way we trust in business. No longer will be need to validate before we trust another party. Thanks to the blockchain buyers will be able to make correctly informed decisions with information that can be instantaneously acquired.
Another key component of the Blockchain system is Miners. Miners are specific nodes that help to validate transactions in order to add them to the ledger. Miners are compensated financially for dedicating computing power to the community. The reason miners dedicate computing power is to validate the transaction. In order to validate these transactions, miners need to do two things. First, they need to validate the transaction by using the open ledger system to find the correct data and ensure the transaction is valid based on the ledger. Second, miners need to find a specific private key that is generated at random in order to add the data “block” to the ledger. These data “blocks” depend on one another in the ledger, creating a “chain” that is dependent on each previous block. This is where the term “blockchain” comes from.
Miners must solve complex algorithms in order to accomplish these two tasks. The first miner to complete the task is given financial compensation for solving the problem. If there are other miners trying to solve the same problem and are beaten. They immediately stop solving the problem because there is no financial reward for solving a solved problem. The financial reward is put in place in order to ensure that the community can consistently make transactions without fault, the competition allows for transactions to be completed faster and faster as each miner strives to complete the task first.
You now have a rudimentary understanding of how the blockchain system works and how the implication of such a technology will revolutionize the way we do business and store digital information. However, blockchain and cryptocurrencies are in their infancy. The growth of this niche is exponential. Individuals are constantly finding new ways to implement this revolutionary tech. We have already seen companies such as Kodak, Google, Amazon, and many other billion dollar companies invest in the blockchain initiative. For those that say it’s just a fad and will die out soon are simply mistaken. When you get down to the fundamentals of blockchain and truly understand the technical aspects of it, you will come to find out that it is here to stay.