What is Blockchain Technology? And Why You Should Care
When faced with an onslaught of tech buzzwords, it can be incredibly daunting trying to get to grips with new complex technologies. Whether it be understanding exactly what is and what isn’t artificial intelligence (AI) or learning how machine learning algorithms can bring value to your business, it can be hard to see beyond the technical jargon that many hide behind.
For example, In today’s digital world, if someone mentions blockchain, many will instantly think of words like cryptocurrency and Bitcoin. Although these are examples of blockchains in practice, they are only the tip of the iceberg where uses cases are concerned. The success of Bitcoin has made it more difficult for people to get their heads around the broader application of blockchain.
Rather than getting into the whole digital currency debate and baffle you with science, I would like to help you demystify this growing phenomenon. I aim to provide you with a combination of practical examples and real-world use cases in a language that everyone can understand.
Before you dismiss blockchain as just another fad, I want to help you understand how this technology will bring greater trust and transparency to the world of business. The technologies capabilities are far-reaching and will not only transform financial services as we know it, but multiple industries too.
What is a Blockchain?
In very simple terms, a blockchain is an encrypted digital ledger. By applying accounting principles, we can conduct the process of "information sharing" to create better transparency and trust in that information.
Accounting principles refer to the creation & maintenance of an electronic ledger that records information in a way that prohibits tampering. The deletion of any record or information is also prohibited. This ledger is distributed across multiple servers or individual users. In all cases, the copies are synchronized real-time.
The end goal of blockchain is to ensure that virtually any information, transaction data or asset can be tracked or traded which ultimately reduces risk and cuts costs.
An integral part of making a blockchain is the way the chain is formed. Information in the chain is encrypted (hashed) and each block contains the digital footprint of the previous block. If any block in the chain is altered, it breaks the integrity of the entire chain due to the referential integrity. A simplified blockchain is shown below.
What is Hashing and Encryption?
Hashing or encryption of data is really the scrambling of information, so it is not easily readable. The easiest way to understand this is by looking back at your school days. If you wanted to pass a note to someone without your teacher being able to read it, you may have created your own little letter replacement cypher. By shifting the alphabet, you would use letter replacement to create the message making it hard to understand.
That’s the purpose of crypto – to make the data difficult to interpret or read. By using a simple letter replacement shift, you created your own little cryptosystem.
Example 1 - You want to say “Meet me at lunch”; Encrypted it may look like:
Prisoners of war used the TAP method to communicate. Again, it’s a simple replacement grid. They would simply TAP out the letters on the floor or the bars of their cells, allowing them to communicate effectively. Some combine the two methods to keep the guards guessing. Even though basic, it was still a form of simple encryption;
The days of shifts and taps have been replaced with highly complex algorithms. Computers do more in milliseconds than what previously took entire teams months or years. This has given us the opportunity to create highly secure, highly distributed systems. Blockchain technology builds on these concepts to digitally encrypt data and place it on the distributed infrastructure making it near impossible to decrypt.
Why is Blockchain Important?
Although businesses have become comfortable sharing information online, when transferring anything of value, we typically fall back to the old way of doing things in the centralized world. But try to imagine the time and money that can be saved by eliminating third parties or so-called middlemen that provide little in terms of value.
Automating complex processes through smart contracts opens up an unprecedented number of possibilities and opportunities. However, blockchain also opens up a wide range of possibilities in critical areas around medical health records, credit control, and document verification. These are all areas that are currently inefficient and in dire need of being dragged into the 21st century to digitally transform operations. The potential use cases for blockchain technology are wide-reaching, and multiple industries will soon hop on board to bring increased efficiencies, trust, and transparency to their business. Don’t confuse volatile cryptocurrency markets with blockchain. Crypto tokens such as Bitcoin will come and go. But, the business need for irrevocable proof and auditing methods where nobody can cheat the system is only going to increase. These are just a few examples why blockchain is revolutionary technology and not just another passing fad or buzzword.