Blockchain: All You Need To Know
Blockchain was born in a science paper in 1991, and it gained widespread public attention when it was used to create Bitcoin in 2008. Bitcoin is often mistaken for blockchain, but they are two different things.
Blockchain is the foundation upon which Bitcoin, the currency, was built. The two are not mutually exclusive. The reality is that since its inception, blockchain has been adopted and adapted on a global scale in multiple sectors.
What Is Blockchain?
It is Distributed Ledger Technology (DLT) using a decentralized ledger over a peer-to-peer network and encryption coding such as the SHA256 algorithm.
This means no one person is in charge of the ledger. Everyone gets a copy of the ledger and access to it. Blocks of encoded information are created and linked together to form a chain hence the name.
Why Was Blockchain Created?
Blockchain was created to help deal with the issue of trust. Trust that all transactions would be not only final but fair to all parties. It was called the double-spend dilemma.
Example: Bill has $10. He buys something from Jill for $10 then buys something from Jenny for $10 as well. Both transactions are handled without Jill or Jenny knowing about the other.
Since Bill only has the $10 and nothing more, one of these sellers is going to be out money.
Blockchain keeps this from happening with transactions being verified in seconds so there’s no way Bill can spend money he’s already spent.
How does Blockchain Work?
Information is added to a block, the block being a page on a ledger. This information can be anything from financial transactions to smart contracts, and a great deal more. The blocks can hold up to 1Mb of data. The information stored includes the who, what, when, and how much of each entry.
Example: Bill buys a book from Jill for $10. The entry will include Bill’s name, what he bought when he bought it, and how much he bought it for.
It also includes Bill’s financial information since that’s part of the transaction. Once the information is verified by the network, the block is added to the chain. It becomes a permanent record for the public to see.
How Are Blocks Made?
Blocks are made in three steps, and these steps can take only seconds to complete.
- Data is added to a block. Anyone in the network can enter the information and begin a block. As any electronic device in the blockchain network can enter information. These are called nodes. There is no one person in charge of data input. All blocks are shared with the rest of the network once it’s created and ready to be verified.
- A nonce is assigned to the block. This is a 32-bit whole number created by the protocol of the blockchain. It’s used to encode all the information in the blockchain. It also creates a hash for the block. These two numbers are randomly generated.
- The hash is a 256-bit alphanumeric string that includes a lot of zeros in the front of it. It includes both the nonce that generated it and the hash of the block created before it. Each hash is unique and can’t be altered. Attempting to edit the block once it’s been verified changes the hash.
- Miners verify the blocks by “mining” them. Mining is done by executing Proof-of-Work (PoW). This means the miners (nodes in the network) use the SHA256 algorithm to find the hash of the block. Once the hash is found, it’s considered verified and added to the blockchain.
Is Blockchain Secure?
Blockchain was designed to be the most secure platform ever created. Blocks in the chain are arranged according to their verification date and permanently linked together.
Each block contains the identifier of the block before it as part of its own identifier. The length of these identifiers not only makes them harder to verify, it makes them virtually impossible to corrupt.
Every time a block is tampered with, the identifier is changed, and it stands out from the rest of the chain making the change apparent. The only way to hide what was done is to change all the blocks coming after it.
This means not only does the corrupted block have to be reverified, all of the blocks after it does. This is costly in terms of both time and computing power.
What Are The Risks Of Using It?
One of the risks of using blockchain is the event of being hacked. Though it’s virtually impossible for one hacker to do so, a group can. This is known as the 51% Attack.
Example: Bill is one of 40 people using a blockchain platform. Bill wants to take over the chain to use for his own purposes. He gets 20 of his friends to agree to help him by either not verifying blocks themselves or adding their computing power to his.
Either way, Bill will now have control over the entire chain because he has control over 51% of the network.
It must be noted this attack came close to being successful only once, and the group that almost did it decided not to before the attack was complete.
The reason for this is the attack was noticeable and the other members not involved left the network. The whole thing became worthless.
What Can It Be Used For?
Blockchain was originally used to launch cryptocurrency. Now, it can be used, with modifications, in almost every sector globally. A few of the sectors already using it as of the writing of this article:
- Supply lines such as food and raw materials
- Real Estate
Can Small Businesses Use It?
Any size business can use Blockchain if they feel a need for it. Due to the cost, mainly in computing power, Blockchain may not be the first choice for a small business.
Medium to Large companies should evaluate their business before choosing Blockchain. Evaluations should include:
- How is your data currently being documented and stored? Blockchain requires all data to be digitized.
- Is there a trust issue? Are there any security issues with the storing and transferring of data? Can transactions be completed quickly and securely without the risk of double-spend?
- Is there a tracking issue? This is mostly for supply lines, but it can also relate to the transfer of vital yet private documents such as patient records and land deeds.
- What about your current IT setup? Can it incorporate the blockchain platform, or does it need to be tweaked? Most business networks are small so implementing blockchain may not be needed.
- How about your personnel? Does anyone in your IT department know about blockchain and how to use it? If it’s set up by an outside vendor, can they be trained to use it or, do you have to hire new people just for blockchain.
Is Blockchain Hard To Set Up?
Blockchain is easy to set up. The source code is open to everyone. Adding information to begin the chain will start with the original user and then, the rest of the network can start adding blocks.
This said; customization of the platform requires someone who is experienced with blockchain technology.
Is Using It Beneficial?
Blockchain can be used in so many sectors for so many things. It’s secure, and its encryption is virtually impossible to crack. It would take a lot of time and computing power to successfully crack even one hash on a block. This makes it unprofitable for the hacker so they will go elsewhere for an easier mark.
It’s becoming a part of the global world from cryptocurrency to supply lines and so much more. Being a part of the growing community of blockchain users ensures your business will be included in the ever-widening pool of supply and demand.
Blockchain is being developed every second by someone. The platform is being improved upon by teams of scientists, mathematicians, cryptographers, and researchers all the time, and it has been since its inception in 1991.
As technology improves so does blockchain. The original source code hasn’t changed much, but the encryption used has been improved.
It’s the rest that has grown by leaps and bounds — the applications of the platform and the resulting protocols created for them.
Markets all over the world are being tested to see if blockchain would be beneficial to them. Sectors like wildlife preservation and tourism are two of them.
The data generated by these two sectors need to be kept secure and confidential. Poachers can use the data from wildlife preservation records to find and kill animals. The information from tourism can be used by anyone for anything nefarious.
Blockchain has been around for nearly twenty years, and its use has only spread. It’s a driving force behind similar technology and has spawned many associated technologies and disciplines. The future of this DLT is still bright as it remains steadfastly decentralized and secure as well as easy to use.