Chances are, you’ve heard about “blockchain,” if you follow banking, investing or cryptocurrency news. It’s the digital record-keeping technology behind the bitcoin network. It’s been described as “a distributed, decentralized, public ledger,” but blockchain technology is much easier to understand than that definition suggests.
You can think of it like an online ledger that records transactions between two people or parties, without government, business or commercial regulation or control.
Paul Mampilly has hailed blockchain as a leading mega trend that will transform everything from banking, communications and media.
It has also become a hugely profitable investment for individuals who were early adopters, buying into companies who have embraced and advanced the technology.
What Is Blockchain?
You can think of blockchain as a chain of blocks of information — hence the name.
Blocks in the chain store information about various transactions — the date, time, purchase price and names of individuals involved in an online product of service, for example. The information is coded — using what are called “hashes” to distinguish one block of information from another in the chain. These cryptographic codes are created by special algorithms.
Blockchain technology is best known for its use in building cryptocurrencies — digital coins such as bitcoin and ether. These are the best working examples of the technology.
Blockchain is the perfect system for monetary transactions because it allows for fast, safe and efficient electronic monetary transactions, even when huge sums of money are involved.
But bitcoin is just one example of blockchain technology. In fact, blockchain has many other applications because it is essentially a new way of keeping records digitally. So, it can be used for virtually any kind of record keeping or database management.
For instance, blockchain is making inroads into the music industry (with music-sharing file systems), health care system (and insurance), telecom (smartphones), contracts, property records, document services (think passports, personal IDs and birth, wedding and death certificates) and even voting systems (with a test of blockchain in the 2018 West Virginia midterm elections proving it was a fraud-proof alternative). You can also read about America 2.0 Explained: Cannabis by clicking here.
Blockchain technology offers many advantages over traditional record keeping and data systems — greater accuracy, lower cost, decentralization and stronger security.
Historically, digital data has been kept, stored and secured on a server owned and operated by a third-party company or regulated by a government agency. But these systems are not secure. They are frequently breached — making your data vulnerable to cyber criminals. In addition, they frequently go offline, which makes access to the data — or your money or other files — unavailable.
But with blockchain, the data is encrypted and distributed through a network of computers. So, it is not owned by any one person, company or government and cannot be destroyed or tampered with.
Blocks of data are permanently recorded — such as a financial transaction — and encrypted. So, the only parties who have access to it are the two individuals who are part of that transaction.
The blocks of data are then connected — or chained — to one another.
Blockchain has one extra layer of security that thwarts potential hackers. Each new block of data that is added to the chain must first be verified. This verification process is technically complex, making it virtually impossible to hack into.
Blockchain can hold virtually infinite amounts of information, accessible to anyone with an internet connection.
How It Works
In practical terms, here’s how blockchain works:
Let’s say you and a number of your friends make copies of every single record you have. Then you encrypt the data and store it on your own computers. That way, if one of those computer files is hacked or stolen, the thief can’t interpret the data and you have numerous backup files saved on your friends’ computers.
Here’s another example:
When you pay for something on Amazon with a Visa credit card today, the centralized Visa and Amazon networks both have to be up and running. But by using blockchain, you could buy groceries with bitcoin using your smartphone and that transaction would be processed in a fraction of a second. It would also be recorded on your phone and verified on the blockchain by thousands (or even millions) of connected devices that all confirm the information of my transaction and store it.
For these things to happen, several specific things must happen for new data to be added to the blockchain:
No. 1: The transaction. Since a block will contain hundreds or thousands of transactions, any new block in the chain must be recorded and added to the block with other users’ transaction information and details.
No. 2: Verification. Any new transaction must be verified. Unlike other public records of information, like the Securities and Exchange Commission, Wikipedia or your local bank — no one is in charge of tracking new data entries on blockchain. Instead, the network of computers used by that particular chains users perform that function. So, when you record a transaction — an online purchase, for instance — that network of computers rushes to check that your transaction and confirm the details of the purchase, including the transaction’s time, dollar amount and participants.
No. 3: The record. After a new transaction has been verified as accurate, it is stored in a block — denoting the transaction’s dollar amount, the digital signatures of the parties involved and other details. That block is given a “hash” — a unique, identifying code that is encrypted — and becomes available to view — even by you.
Is Blockchain Private?
Yes and no.
On the one hand, anyone with a computer can view the contents of the blockchain. But, on the other hand, it is not public like a government report or file, and there is no public management by a single agency.
Users can connect their computers to the blockchain networks, and notifications whenever a new block is added. It’s comparable to Facebook, which alerts users wherever a new status is posted in their News Feed.
So, each computer in any blockchain network retains a copy, so there are thousands or even millions of copies (as in the case of bitcoin). That makes the information difficult to hack or manipulate.
Is Blockchain Secure?
Because there is no single, definitive record of transactions that can be manipulated with blockchain, it’s almost impossible to hack. A hacker would need to manipulate every single copy of the blockchain on the network to do so — that’s thousands of copies.
Also, because the data on blockchain networks is encrypted, hackers have no way of accessing identifying information about the users making the transactions. Personal information about users is limited to their digital signature or username.
Blockchain technology also builds in several additional security measures:
- New blocks are chronological, so each new piece of information is added to the end of the blockchain network. Once a new block is added, it is very difficult to change or hack earlier blocks in the chain, because each has its own unique hash, along with the one before it that makes each network a string of numbers and letters — each tied to the next.
- If a hacker were to change or edit a specific transaction, it would change the block’s unique hash code. But the next block in the chain would still contain the original hash, so the hacker would need to update that block, too — and so on and so on.
- Unlike conventional digital records — which exist in a single file, in a single location — blockchain networks are decentralized. So, to change even a single block, a hacker must change every single block after it on the blockchain. That would take an enormous amount of time and computing power, which is why hacking blockchain networks is almost impossible.
- New blockchain network computer users undergo specific challenging computation tests — called “consensus models” — before being allowed to join.
Blockchain vs. Bitcoin: Is There a Difference?
Blockchain is the digital network that supports bitcoin, so they are not the same thing. But bitcoin, which launched in January 2009, was the first real-world application of the technology and perhaps its most well-known.
That’s why blockchain and bitcoin are often spoken of in the same breath.
In a nutshell, the bitcoin protocol is built on the blockchain. In a research paper introducing the digital currency, bitcoin’s pseudonymous creator Satoshi Nakamoto called it “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”
Nakamoto laid out the framework for blockchain — a decentralized digital database managed independently through peer-to-peer networks, using a secured, encrypted system to conceal and secure these records.
Currently, millions of people across the globe own at least a portion of a bitcoin. When one of those millions decides to spend his or her bitcoins, the functions of blockchain kick in.
Unlike printed money, checks, bank cards or credit — all of which are regulated and verified by central authorities such as a bank or government — bitcoin is not controlled by any single entity. Bitcoin transactions are verified by a network of computers — by the millions in the bitcoin blockchain network.
So, when someone pays for something using bitcoin, computers on the blockchain network verify the transaction — using encrypted “hash” codes to verify, complete and publicly record the transaction as a block on the blockchain.
To use the bitcoin network, participants use a program called a “wallet” that includes two unique cryptographic keys: a public key and a private key. The public key — the user’s digital signature as it appears on the blockchain ledger — is where transactions are deposited and withdrawn. This public key is a shortened version of the user’s private key, created through a complicated mathematical algorithm.
So, you can see why blockchain will become the new operating system under 5G because it is web-based, secure and virtually free of government, corporate and institutional interference.
What’s Driving It?
In many ways, blockchain emerged as a backlash to global financial systems after the 2008 economic crisis. During that crash, U.S. banks lost more than $16 trillion in household wealth.
After writer Satoshi Nakamoto delivered a rallying cry for the new technology — in an article called “Bitcoin: A Peer-to-Peer Electronic Cash System,” published after the 2008 financial crisis — the idea took off.
Since then, blockchain has become a great platform for financial transactions, but also other types of data sharing.
And with 5G technology, the speed at which that data can be transferred will explode, which will make blockchain a better alternative than slower centralized networks.
That’s partly why blockchain is being embraced by the nation’s 92 million millennials — the biggest generation in history.
It’s also why some of the biggest companies in the world are scrambling to become early adopters of blockchain tech. They recognize that it will become part of the connective tissue of 5G wireless.
By streamlining the flow of information and removing the middleman, blockchain is clearly a key player in 5G. It’s the operating system of the future. It will also be key to the use of cryptocurrencies, such as bitcoin, which will soar as 5G expands.
Blockchain is also advancing rapidly, in part because of major breakthroughs in computer technology, semiconductors and microchips.
Blockchain takes up a lot of computing power, so we need super computers to run those applications.
Most current graphics processing units (GPUs), which analyze and store data on your computer, haven’t kept up with the complex mathematical calculations needed to run blockchain technology.
But that’s starting to change as semiconductor companies, microchip makers and other tech innovators are designing and making next-level GPUs with the necessary computing power to handle blockchain’s algorithms at a competitive rate.
3 Pillars of Blockchain
Three primary properties of blockchain technology which have helped it grow — decentralization, transparency and immutability.
No. 1: Decentralization: Before blockchain, we centralized services for almost everything — banking, finance, record keeping and files of all types. But those centralized data banks are easy for hackers to target, frequently require upgrades, go down when servers or service providers falter and are easily corrupted with malicious software and viruses.
That’s why a decentralized system, such as blockchain, is a better alternative. The information is not stored by one single entity, it is “owned” by everyone in the network and only the two people involved in a transaction need to be involved — without interference from a central authority.
No. 2: Transparency: Although blockchain users’ private identities are hidden — via complex cryptography and represented only by their public address — the operations of the system are open for anyone in the network to see.
For instance, transaction records don’t say “Joe Smith bought a product from Amazon retailer XYZ with one bitcoin.” Instead, they record the transaction with a numerical code that says something like: “2AFJ1bNRtFLkB9vpFYEmvwT2TbyCt7NZJ sent 1 BTC.”
So, on the one hand, all transactions are visible and transparent, via the encrypted public addresses of the parties involved. But, on the other hand, the real identities of those parties are secure and private. This kind of transparency has never existed before with a financial system, giving it an extra level of accountability.
No. 3: Immutability: Once a new block of data has been entered into the blockchain, it cannot be tampered with because of the technology’s unique cryptographic hash-code functions. That makes blockchain data virtually immutable.
This prevents financial shenanigans of all kinds — from hacking, to embezzlement to “cooking the books” of accounts. The reason why the blockchain gets this property is that of the cryptographic hash function.
What Are Some Examples of Blockchain Technology?
Blockchain is best known for its use in financial systems, bitcoin, digital banking, peer-to-peer lending networks and the like.
But the technology also has a wide variety of other non-financial consumer and government applications that are beginning to take shape. Among them:
- Personal identity verification (passports, IDs).
- Records management (titles, deeds).
- Online voting systems.
- Tax collection/disputes.
- Permits (hunting, fishing, firearms).
- Business contracts.
- Clinical trial data.
- Supply chain management.
- Health care and medical records (including genome record sharing).
- Media and music distribution.
- E-commerce with no middleman.
- Shared-economy systems.
- Tracing valuables (diamonds, art, wines).
- Data storage.
- Cyber security.
- Communications (mobile phones, tablets).