The concept of blockchain started off as a simple research project in 1991 and saw its first use in “bit gold” in 1998. The concept didn’t get so widely accepted at the time, though. It wasn’t until it was used in bitcoin by Satoshi Nakamoto – a pseudonym used by an unknown developer (or developers).
Bitcoin and blockchain present a large number of benefits, creating a very tight-knit community based on trust and privacy. However, it wasn’t until the late 2010’s that the concept truly shot up to become the beast it is known as today.
In this article, we will consider what blockchain is, why it became so popular, and what makes the technology such a great tool for such widespread use – particularly in something as sensitive as cryptocurrency.
What is Blockchain?
Think of blockchain as the notebook that you use to record activities, make notes, doodle, and more when in the classroom – except that it is digital and endless. The “magic” notebook keeps on adding new pages at the end each time you turn a page. The more pages there are, the more difficult it becomes for others to ‘hack into’ the notebook.
Of course, what you write on each page can be seen by others as well, but once you have written something on it, changing the recorded information is impossible. You can’t overwrite or cut what was written. Hence creating more transparency and a better track of how the information within has evolved over time.
This is precisely what the concept of blockchain is; your virtual and continuous notebook that contains a list of digital records called blocks. These blocks contain timestamped data that cannot be changed at all – not even by the original poster. This can be any type of data, but the most common one is transactional and business information.
The only difference between the blockchain and your notebook (apart from the fact that one is digital and the other is a magical physical object) is that blockchain is a:
- Decentralized ledger. This means that the transaction does NOT have a centralized authority monitoring the activity. In fact, every blockchain user has the authority to input more data, provided certain conditions are met.
- Distributed ledger, meaning that the core ‘notebook’ is shared across multiple sites and can therefore be accessed by multiple people at the same time.
- A public ledger, which means that it maintains participants’ identities at all times in the form of pseudonyms or “user names.” Whenever the ledger is altered, the user name is associated with the change. These user names are almost impossible to track down, thanks to the privacy offered by the blockchain.
The Blockchain “Block”
The continuously growing list of ordered records is called blocks, which are connected using cryptography (the glue). Each block contains a cryptographic hash of the previous block, i.e., a fixed image of how data was allocated within the block, a timestamp, and of course, data itself.
Hashes and an unchangeable timestamp mean that the data itself cannot be overwritten. If you want to make changes to the information therein, you will need to add more data that records the change either at a later point in the same block or in the subsequent blocks.
Normally, a blockchain is a decentralized, distributed, and public digital ledger that is used to record transactions across many computers so that the record cannot be altered based on past data and without the alteration of all subsequent blocks and the consensus of the network.
While the most prevalent use of blockchain is still to record and store transactions for cryptocurrencies, the first one to use blockchain was Bitcoin, but now the number of cryptocurrencies is well over 10,000. Furthermore, the concept is being used in a wide range of industries, such as cybersecurity, data storage, the financial sector, healthcare, education, and more.
Why Has Blockchain Become So Popular?
While modern banking models are fairly straightforward, you only look at the front end of the service. There are actually a number of transactions, transfers, and intermediaries involved in any given transaction. These intermediaries not only introduce lag but also increase the cost of transactions and privacy risks.
The most prevalent issue is that these transactions can be tampered with very quickly. The intermediaries can find out your identity fairly easily as well. This vulnerability is what gave birth to the modern blockchain infrastructure. Since the blockchain allows for much safer transactions, it has become the go-to technology for many, including many banks, for storing transactional data.
This means that blockchain is no longer just limited to cryptocurrency exchanges but is also being used in fiat currency exchanges. Not only does blockchain avoid having to go through numerous intermediaries (such as brokers, bankers, lawyers, exchanges, or more), it also maintains an unmanipulable record of the transaction as well.
Blockchain Technology & Currency – How They Blend Together
Blockchain now blends technology and currency to bring about a wide range of cryptocurrencies and features. One of the most common currencies is Bitcoin. These cryptocurrencies operate without giving validation for transactions to a central bank or other body.
Individuals cannot be identified using this record, and even if they could, hackers would need the user’s specific keys to actually benefit from it. This way, blockchain decreases time, cost, or the risks to a transaction, making it much more attractive for almost every industry.
The Privacy Aspect of Blockchain – A Red Herring That Turned Out To Be A Platinum Arowana
One of the most “problematic” elements of a blockchain and blockchain-based currencies was the privacy they offered. It also focuses on providing value from privacy, speed, and, most importantly, the internet itself. This is why blockchain is often known to provide “value by internet” metaphorically.
Because accessing the information on the blockchain requires a private key, transferring the value of the stored information on each block also requires the same key – which is, in most cases, completely unidentifiable.
Individuals involved in a transaction on the blockchain usually don’t know the identity of the person(s) on the other end. Since there is no intermediary between transactions, the transfer of value is quick and seamless and is recorded on the blockchain immediately.
This creates a barrier between the seller and the buyer, as well as third parties looking at the value transfer record. Traditionally, banks carry out the transfer and can trace the sender and receiver alike.
Unfortunately, this sense of anonymity and privacy meant that blockchain technology was being used for illicit activities much more than for day-to-day transactions. Criminals preferred trading in blockchain to keep prying eyes away. A number of websites started popping up on the darknet – some even on the live net – where transactions could be made using Bitcoin and other cryptocurrencies.
It wasn’t until 2018-19, though, that this changed. At this point, the number of blockchain-based currencies had increased considerably to more than double the number in 2016. This is when the general public also understood the benefits that blockchain could offer. While the public was more inclined toward the “value by internet” part of things, organizations and governments were more concerned with the privacy, lack of editability, and its ability to store immense amounts of data. It was like finding another proverbial Fort Knox but on a digital landscape.
Consumers quickly understood this as well, turning the feature that was considered a red herring for the concept into one of the most expensive fishes out there.
Benefits of Blockchain
There are numerous benefits of blockchain, but the most important among those include:
Almost Anonymous Transactions Via Pseudonyms
Purchases made online with cryptocurrencies offer privacy, anonymity, and convenience. They allow people to purchase without providing their personal information to the merchant. Instead, a pseudonym is offered, to which a specific transaction key is issued. Transactions can be traced back to a person or entity through extensive work by law enforcement individuals now, though, as the focus on reducing criminal activity with cryptocurrencies decreases.
While this means that it doesn’t offer the same level of anonymity as in the past, it also means that people are safer compared to traditional banking.
Peer-To-Peer Purchasing
One of the biggest advantages of using cryptocurrencies over using traditional currency is that there are no third-party intermediaries (such as banks) involved in the transaction. This lowers transaction costs and times for merchants and consumers, along with offering one major advantage; protection against cyber attacks on traditional systems.
Traditionally, all clients are connected to and from a central server that dictates policies and handles all transactions. This is known as a client/server relationship. Blockchain allows for peer-to-peer transactions where the clients are distributed and connected to each other directly.
Smart Contracts & Programmability
There are also certain features offered by the blockchain, especially in the world of cryptocurrencies. From voting rights to the programmability of the blockchain into applications, usage of tokens to create digital value, and more, you can program the blockchain to record and post data as you want and respond to it accordingly. Smart contracts can trigger activities quite easily, giving the blockchain a rather diverse outlook.
A World Benefiting From Blockchain
We all use the internet to transfer information, but when it comes to money, we are forced to rely on old-fashioned institutions like banks or government agencies. With Blockchain technology, people can share information without the need for a centralized institution.
The world has adopted blockchain in a number of industries, such as POS integration, cryptocurrencies, the educational sector, financial sector, health and telemedicine, media and entertainment, retail and ecommerce, federal usage, and much more. This adoption has streamlined our processes quite effectively, especially now as we move towards the end of the Information Age. Now living in a world without understanding what blockchain is is sure to take a rather impactful step backward as we lose our capability to trust each other and create a better economy.