what’s all the hype?
With so much media hype surrounding cryptocurrencies such as Bitcoin and Ether, it’s easy to overlook their underlying infrastructure – blockchain technology (or distributed ledger technology) – but it’s really the blockchain technology itself that warrants further investigation.
Blockchain technology has the potential to change IT in much the same way that open-source technology did, changing the way the economy works by providing a more efficient way to verify, record and execute transactions. Although, it will still take quite some time for it to become a lower cost, more efficient way to share information between open and private networks.
So, what exactly is blockchain technology?
Blockchain technology isn’t just one single technology. Instead it’s an architecture that allows different users to make transactions, whilst creating an unchangeable record of those transactions.
A blockchain is a global and decentralized ledger that stores information about transactions and verifies the data. It’s powered by a network of participating computers (or nodes), where each one has a copy of the blockchain.
Each block in the chain is a unit of encrypted data about a specific transaction. The data identifies all the parties involved in the transaction and includes a unique value that identifies the block and its contents, called a hash. This hash will change if the data is altered.
A broadcast is sent out to every node on a network for verification (or proof-of-work) when a block is created for a new transaction. If/when the transaction data is validated, the new block will be added to the chain.
Basically, a blockchain is a chain of blocks ordered in a network of non-trusted peers where each block contains data, its own hash, the hash of the previous block, and references the previous block.
Usually, tokens are integrated into public blockchains, but they aren’t a requirement and are not necessarily cryptocurrency. A token can represent a variety of actions and/or assets. It could represent a ticket, a service or another non-monetary reward, or it may be required to use a service or as an incentive to validate data.
Public vs private blockchains
Blockchain permutations fall mainly into one of two categories – private or public.
Private blockchains restrict the ability to write to a distributed ledger to one organization (e.g. a group of employees within a corporation) or between a set number of organizations (e.g. several banks that agree to a network partnership).
Public blockchains allow anyone to see or send transactions, as long as they’re part of the consensus process. Public blockchains can include consortiums, where only a pre-selected number of nodes are authorized to use it (e.g. a group of banks and their clearinghouse might use blockchain as part of trade-clearing) where each node is associated with a step in the verification process.
How secure is blockchain?
Because blockchain is created on a distributed, peer-to-peer network system where data can be stored globally on thousands of servers – and anyone on the network can see everyone else’s entries in real-time – it’s practically impossible for one entity to gain control of it.
For any kind of transaction to take place, the network of nodes must all first agree that the transaction is valid. No one entity can go in and say whether or not a transaction did or didn’t occur.
So, while no system is “unhackable”, to hack a blockchain system, one would have to hack into every single computer on that network (unlike a bank where you would only need to hack into that one system), which is significantly better than any other system operating today.
What does blockchain technology mean for businesses?
Of course, cryptocurrency (and its potential for a financial model removed from a central authority) is the most popular use of blockchain technology, but it’s ultimate potential goes far beyond that.
The distributed nature of blockchain technology helps to protect data from tampering and deletion, as every change to a block (whether it be a transfer or payment) is part of a digital history that can be identified, shared, and validated.
Although blockchain has the potential to create new foundations for economic and social systems, adoption of the technology is expected to be slow and steady. It’s unlikely that blockchain technology will replace corporate relational databases. Instead, it will create new models for transactional data, both within and outside of international enterprises.
The potential uses of blockchain go as far as the imagination can stretch, but the real use cases will emerge when the bubble bursts and the hype surrounding blockchain technology dies down. This is when investment will become more focused and allow developers time to identify problems without coming under pressure to rush out technology while it’s in vogue.
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