Blockchain. If you’re like me a year ago, the mere mention might make you go “huh?”
Decentralized, tokens, ledgers….you’ll quickly find yourself down a rabbit hole of even more confusion.
There are many articles that jump into technical details without taking the time to explain this exciting new technology in simple terms.
Blockchain technology is disrupting industries from healthcare to banking. As consumers push for more transparency and security, companies will be forced to adapt. Having a rudimentary knowledge of the space will help you determine if the technology is right for your business and can help you remain competitive with new players in your space popping up daily.
So let’s start with the definition of a blockchain in basic terms. But before we chain things together, let’s talk blocks.
What Is A Block?
A block is a record of new transactions. A transaction can be something bought or sold. But it can be a lot of other things, too. File storage. Smart contracts. Medical records. A record of how much energy you own. A recorded conversation. The list is endless. Basically, each block is a record of digital information.
What Is Blockchain?
Now, on to blockchain.
“Blockchain is a distributed digital public ledger with the potential to dramatically impact all industries that rely on trust or record-keeping/authentication.” says Scot Cohen, CEO of Bitzumi. “It provides the foundation for secure peer-to-peer digitally based transactions which are publicly viewable.”
New digital information gives us a new block, which gets attached to the old block, or chained together. That chain is a special kind of programming called a “hash function.” The technical details are enough to give even veteran computer scientists vertigo, so let’s use an analogy instead.
Think of a hash function as a tool. It takes an input, does a lot of complex work, and produces an output. In this case, the input is a new record of transaction. (A new block.) The output is the chain, which links the new block to the old block in a way that cannot be changed, erased, or reversed. It’s like a one-way street. That is different than, say, encryption, which can be encrypted and decrypted, more like a two-way street.
Now Let’s Talk Encryption
The blockchain is encrypted using a public key and a private key. The public key is your “digital address” on the blockchain. The public key doesn’t have any information about you, personally. Not your name, not your home address, none of that. It’s just a secure way to express the digital locations on the blockchain you have access to. So your personal information remains anonymous. (If you’ve ever had your personal information hacked before, then you can appreciate what a big deal that is.)
You can think of a private key as the correct combination of a safe. The private key is how you access the information stored on the blockchain. It doesn’t get saved online, only on hardcopy. (This is not the sort of thing you want to risk committing to memory or save on a computer where hackers can get to it.)
So the public key gives you a secure digital location, and the private key provides secure access.
Not too bad so far, right?
But up to this point, all I’ve described is a glorified spreadsheet. That’s because we’ve been talking about a blockchain from the standpoint of one lone user. Once we bring multiple users into the mix, it gets more interesting.
A blockchain (your digital information log, your spreadsheet) is stored on multiple computers all over the web. Each computer is called a node. Together, they form a peer-to-peer network. When someone requests a transaction, which is the same as saying someone requests a change to the digital information log, all those nodes get busy validating it. Once it’s been carefully validated by the peer-to-peer network, the transaction is complete and added to the chain. Permanently.
How Can Blockchain Disrupt Your Industry?
Blockchain technology has several key advantages:
The information is decentralized with no single point for hackers to exploit
The transaction record is viewable by anyone on the network, so it’s fully transparent, sometimes called a “public ledger”
Your personal information is still protected
The information log is encrypted, so the content is secure
Decentralized, secure, transparent information can’t be altered or controlled by an individual or organization
Blockchain technology is fascinating, but unfortunately surrounded by a lot of hype and buried in confusing jargon.
In the future, I expect that more and more companies will turn to blockchain-based technologies. Consumers will push in the same direction because they want more choices, freedom, and economic transparency.