What is blockchain?
Blockchain is a data storage technology created by researchers in 1991 to put digital timestamps on documents in a way that makes it impossible for them to be backdated or tampered with. In 2009, the technology was revived in relevance by Satoshi Nakamoto to create the popular cryptocurrency, Bitcoin. How does it work?
Put simply, a blockchain is a series of connected “blocks” of data, which contain three parts. First, of course, is the information that we want to store in it, for example, in the case of Bitcoin, a transaction that has taken place. The second part is a hash. Essentially, a hash is a calculated unique identifier which identifies that block. The last piece of information in a block is the hash of the previous block in the chain, meaning each piece of information is linked to all previous pieces of information. This makes it hard to change one block in the chain without changing all the other blocks. Any change is easily noticeable to people who have access to the blockchain.
Nowadays, computers are capable of incredible things. Wouldn’t someone be able to recalculate the hashes of the blocks, and cover their tracks? Yes, if it wasn’t for the “proof-of-work” process, which elongates the process of changing or creating blocks, such that any changes are difficult to cover up.
There’s one more important security feature of blockchain. It’s actually not centrally hosted, like a majority of the data we see and interact with today. It’s based on a peer-to-peer network, meaning that each person who is accessing the blockchain, has their own copy of the blockchain, meaning that any additions or changes to it have to be verified across the public network in order to go through. Here, we see how as opposed to a centrally hosted system, we have a distributed system.
Therefore, we can say that blockchain is an innovative, decentralised, publicly transparent data tracking technology. Anyone looking to breach blockchain security must conceal the damage they do by recalculating the hashes while going through the proof-of-work, as well as gaining control of over 50% of the public network, if they want the change to go through. It’s a proven, secure system.
Blockchain’s main usage in the modern era has been in ensuring the security of cryptocurrencies, some of the most popular being bitcoin and ethereum. For cryptocurrency, blockchain essentially acts as a bookkeeping platform creating a history of past transactions which are incorruptible through the functions previously described. Blockchain directs ownership of the currency, boasting transparency and regulation.
Outside of simply cryptocurrency however, blockchain technology has a plethora of external uses. It can be used for humanitarian reasons, allowing for companies, and individuals to send vouchers and money to impoverished countries without having to tackle the bureaucracy, uncertainty and the high transaction costs involved in the cross-borders transfer of money, particularly for recipients in countries where mandated institutions are less reliable. Other uses include the prevention of voter fraud and the improvement of government efficiency.
As humanity progresses, blockchain is a technology which might shape the future of not only commerce, but society as a whole, in the following ways:
Blockchain possesses the ability to alter the concept of ownership and transactions as our society heads into the future. Whilst these are four key areas, there are many more potential uses of this technology to be explored.
While cryptocurrencies are currently seen as a means of investment, the proliferation of blockchain technologies will rely on purpose-based access. It is important to facilitate access to this technology in a purposeful yet seamless fashion. In blockchain’s life-cycle, this means being able to provide and promote innovative and seamless integrations of the technology so that we can make it past the early adopters and innovators, and into the masses, where blockchain will be most impactful.
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.