Not a day goes past now without a blockchain based story hitting the headlines. Its primary use started life within a digital currency, everyone has heard of bitcoin, but did you know it has many applications from healthcare to the Internet of Things?
Digital currencies including Bitcoin, LiteCoin and Ethereum have surged in value over the last 12 months. While many of us have been left scratching our heads wondering what exactly it is, people including the Winklevoss brothers have made billions.
If like me, you have been researching cryptocurrencies, many stories, threads and articles are confusing, as they’re filled with terminology and explanations that seemingly only extremely well-educated engineers and physicists would understand.
It’s virtually impossible to define what exactly blockchain technology is without including highly complex and technical explanations.
Where it came from
If you’ve heard blockchain mentioned before, it was more than likely concerning Bitcoin, therein lies an important point, they are not the same.
The blockchain is the technology that powers Bitcoin. (Source)
Today it powers many other applications (which I will cover below), but it started with Bitcoin, and this is why the two are often associated together.
For any digital currency to be able to work, it must achieve some essential qualities of real money: trust, truth, uniqueness and traceability. Look at any note in your wallet, and you will see a unique set of numbers (traceability), the quality of the paper its printed on is tough to reproduce (truth and uniqueness), and a hallmark of authenticity (trust). As consumers, we understand there is not an infinite amount of money, which creates scarcity.
Scarcity creates value.
So how can a digital currency achieve the same level of trust, traceability and scarcity as any tangible currency? Step in blockchain technology.
The only way cryptocurrency can operate is when every transaction is safe, traceable and unique.
Breaking down how it works
A blockchain is a database.
Often associated with financial records, but primarily a database that tracks any form of digital asset.
For any digital currency, a blockchain acts as a digital ledger. You may have seen or heard the term ‘digital ledger technology’ alongside blockchains, especially through tech guides.
Why does digital ledger need to be so provocative? Because there’s something significant about blockchain databases:
The database is decentralised.
Similar to cloud technology, think Dropbox and icloud, the database is located on an extensive network of computers, as opposed to being stored across individual machines.
Bitcoins network is vast, and every single computer attached to that network stores its entire blockchain database at the same time.
Key term: “node.”
Used to describe how blockchain records are stored. In this case, “node” means any computer connected to the blockchain network.
Decentralisation eliminates any need for a third party to verify its transactions, because the entire network confirms each transaction, and records of every transaction are publically accessible (meaning, no need for banks).
While many people find the idea of an open-source financial network concerning, in this case, it created trust and value in digital currency. This is why Bitcoin has real, meaningful value to it.
When there’s an update to the chain, every computer on its network updates records with all of the transactions details. Making it virtually impossible for fraudulent transactions.
Simplified: Each transaction produces a unique block, and once that block is completed and recorded in the database, its then added to the chain. Thus, the blockchain.
Having all of this data in the public domain means we can see how much currency is circulating and when and where it’s been transferred.
It creates the uniqueness and scarcity necessary for the digital currency to work.
Notable point: While the transaction data is public, the private information associated with the individuals are protected.
Other Blockchain Applications
Your health records have the potential to be encoded and stored on a blockchain with a private key, Granting access only to specific individuals.
Something as simple as proof or surgery could be stored on a blockchain and automatically sent to insurance providers.
The ledger, too, could be used for general healthcare management, such as supervising prescriptions, test results, and managing healthcare supplies.
One of the more significant issues within the music industry is ownership rights and royalties.
Blockchain could fix this problem by creating a comprehensive and accurate decentralised database of music rights while the ledger could provide transparent information of artist royalties and real-time distributions to all involved. Simplified further by paying monies owed with a digital currency.
Did you know the first digital passport launched on Github in 2014?
They work very efficiently, starting by you taking a photograph of yourself, stamping it with public and private digital keys, both of which are securely encoded, proving it is legitimate.
Digital passports are stored on a ledger, given a Bitcoin address with a public IP, and confirmed by Blockchain users, Simple.
Personal Identification Blockchain
How many forms of identification do you carry with you? Drivers license, smart device passwords, keys etc.
A blockchain personal ID is a digital form of ID that’s engineered to replace any form of physical identification.
Smart Appliances Blockchain
If you do not know already a smart appliance is a device that you connect to your internet, giving you more control and access than before.
A great example could be controlling your central heating system, through your smartphone, or setting alerts to tell you when your washing cycle has finished. These and more can save you money by improving energy efficiency and help you control your devices when away from home.
Encrypting these appliances on the blockchain protects your ownership and enables transferability.
Just the surface of Blockchain
Blockchain technology can offer solutions for almost every industry where uniqueness, truth and traceability are required for digital assets.
The visibility and use of blockchain are only just starting. The potential is incredible, and I for one am excited to see how it evolves over the coming months and years and appears more in our everyday lives.