By now you’ve all heard of Bitcoin and how volatile the cryptocurrency market has been, which has certainly attracted a lot of investors and day traders.
But here at Geekturf we’re more excited about the underlying technology that drives cryptocurrency rather than the crypto gold rush (though we’ll cover that another time).
I’m talking about the blockchain, and it’s the buzzword frequently used when you read up on cryptocurrency news. Crypto enthusiasts brag about it. Futurists believe in it. Even a Bruneian startup actually uses this technology as its business model.
But why is it such a big deal you ask? Well, if you think that the blockchain is only useful for transacting Bitcoin, you’re barely scratching the surface.
Read on and discover why this technology stands to revolutionise the world.
First things first, what on earth is a blockchain?
To put it in the most simplest terms, a blockchain is an open decentralised database of every transaction involving value. Think of it like a public ledger that chronologically records transactions made digitally.
Okay, but how is it useful for anyone?
The blockchain is designed to solve a common problem with digital information, known as the “double-spending problem”.
Allow me to explain.
You see, before the blockchain exists, it would be impossible to transact digital currency that is decentralised, like Bitcoin. This is because digital information can be easily reproduced, like when you share a photo to your friends over Whatsapp or sending a PDF file to a person via email – you’d still hold the original copy of those files.
So theoretically, the holder of the digital money could spend the same money twice, thus creating the “double-spending problem”.
I don’t follow. Care to give an example?
Sure. Here’s a simplified example of the “double-spending problem”:
Saiful has 20 Bitcoins in his e-wallet. Without the blockchain, he’s able to send 20 Bitcoins to Nurul and 20 Bitcoins to Khai, and he would still have 20 Bitcoins with him.
The blockchain eliminates this “double-spending problem” so Saiful can exchange anything of value digitally just like in real life.
Now, if Saiful sends 20 Bitcoins to Nurul, the blockchain must ensure that he no longer has the 20 Bitcoins because they’re already with Nurul. Sorry Khai.
I see. So how exactly does the blockchain work?
In the blockchain lies a decentralised database of transactions that are visible to everyone in a peer-to-peer network. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.
Now here’s where it gets interesting. Each new transaction is recorded as a block and added on top of another block of transactions, creating a chain of blocks. Because cryptocurrencies are encrypted, processing those transactions require solving complicated math problems.
People who solve these equations are rewarded with cryptocurrency in a process called “mining”. This concept is similar to how miners dig for gold and get rewarded for their work.
Yeah, but will hackers still my Bitcoin in the blockchain?
All blocks added to the chain are verified by the entire community to be true and can’t be tampered with. If a hacker attempt to modify a block, the changes will not be approved by all ledger participants in this massive peer-to-peer network.
This entire process is what makes the blockchain a digital public ledger that is ultra-fast and secure.
That’s really cool, but is it only used for sending Bitcoin?
Most of us think the blockchain is only used for cryptocurrency transactions, but the technology can do more than just paying Bitcoin at a 7-eleven in Japan.
A new feature in the blockchain, Smart Contracts, lets you publicly transact anything from financial derivatives to land deeds to insurance premiums to copyright protections to medical data, the list goes on.
Hold on, what’s a Smart Contract?
They’re digital contracts that are self-executable, with the terms of the agreement between buyer and sell written into lines of code.
The blockchain ensures that all ledger participants know the contract details and that contractual terms implement automatically once conditions are met.
This method of peer-to-peer transaction cuts out the middlemen, and inevitably reduce time and money to process those contracts. No more dealing with lawyers, bankers and intermediaries.
Alright, I get the picture. But how do I know the blockchain isn’t just another fad?
Good question. Sit tight as this part is probably going to blow your mind.
The global economy is shifting towards one of distributed property and trust, where anyone with a smartphone and access to the internet can make blockchain-based transactions without the need for third party trust organisations.
Because of this decentralised nature, the blockchain will benefit many people especially in underdeveloped nations. In the future, immigrants could easily send money to countries where access to financial institutions is limited.
The blockchain technology will also significantly reduce fraud because all transactions are recorded in a public and distributed ledger and verified by the entire community.
More businesses are also jumping onto the blockchain bandwagon in hopes to improve their bottom line. For example, big tech companies like Samsung are looking into using blockchain technology to keep track of its global shipments, while Sony is planning to use the tech for digital rights data, specifically for its PlayStation games sold online.
Blockchain is already disrupting the industry, with cryptocurrency and smart contracts as the main driving forces behind it. It will be an integral component in the digital economy, alongside the Internet of Things (IoT), virtual and augmented reality, and artificial intelligence.
I know right?