Many people think of blockchain as the technology that powers Bitcoin, despite this is its original purpose, block chain is capable of a bit more. Despite the sound of the word, there is not just one block chain.
Blockchain is shorthand for a whole suite of distributed ledger technologies that can be programmed to record and track anything of value from financial transactions to medical records and even land titles.
You might be thinking that we already have processes in place to track data. What is so special about the block chain?
Let’s break down the reasons why block chain technology stands to revolutionize the way we interact with each other.
Reason number one; the way it tracks and stores data.
Blockchain stores information in batches, called blocks that are linked together in a chronological fashion to form a continuous, metaphorically called a chain of blocks.
If you make a change of information recorded in a particular block. Don’t rewrite it. Instead the change in a new block shows that X changed to Y at a particular date and time.
That sounds familiar? That’s because blockchain works in a centuries-old method of the general financial ledger. It’s a non destructive way to track data changes over time.
For example; let’s say there is a dispute between Anne and her brother Steve over who owns a piece of land that’s been for the family over years.
Because blockchain technology uses the ledger method there is an entry in the ledger showing that Adam first owned the property in 1900 when Adam sold the property to Dave in 1930 a new entry was entered in the ledger and so on.
Every change of ownership of this property is represented by a new entry in the ledger right up until Anne bought it from their father in 2007 and Anne is the current owner and we can see that history in the ledger.
Now here’s where things get really interesting. Unlike the age ledger method originally a book then a database is stored on a single system.
Block chain was designed to be decentralized and distributed across a large network of computers. This decentralization of information reduces the ability for data tampering and brings us to the second factor that makes blockchain unique.
It creates trust in data. Before a block can be added to the chain, a few things have to happen. First, a cryptographic puzzle must be solved, thus creating the block, the computer that solves the puzzle shares the solution to all computers on the network. This is called proof of work.
The network verifies the proof of work and if correct, the data will be added to the chain. The combination of these math puzzles and verification by many computers ensures that we can trust every block on the chain because the network does the trust building for us.
We now have the opportunity to interact directly with our data in real time and that brings us to the third reason why block chain technology is such a game changer. No more intermediaries.
Currently when we are doing business with one another we don’t show the other person our financial or business records. Instead, we rely on trusted intermediaries, such as a bank or a lawyer to view our records and keep that information confidential.
These intermediaries build trust between the parties and are able to verify, for example, that “Yes, Annie is the rightful owner of this land”.
This approach limits exposure and risk but also adds another step to the exchange, which means more time and money spent.
If Anne’s land title information was stored in a block chain, she could cut the middleman, her lawyer, who would ordinarily confirm her information with Steve.
As we now know, all blocks added to the chain have been verified to be true and can’t be tampered with. Anne can simply show Steve her land title information is secured on the block chain.
Anne would save considerable time and money by cutting out the middle man. This type of trusted peer-to-peer interaction with our data can revolutionize the way we access, verify and transact with one another.
And because block chain is a type of technology and not a single network it can be implemented in many different ways. Some block chains can be completely public and open to everyone to view and access.
Others can be closed to a select group of authorized users such as your company, a group of banks or government agencies. And there is a hybrid public-private block chain too.
In some, those with private access can see all the data while the public see only the selected. In others, everyone can see all the data but only some people have access to add new data.
A government for example could use a hybrid system to record the boundaries of Anne’s property and the fact she owns it while keeping personal information private or it could allow everyone to view property records but reserve to itself the exclusive right to update them.
It is a combination of all these factors; decentralizing of data, building trust in the data, and allowing us to interact directly with one another and data that gives block chain technology the potential to underpin many ways we interact with one another but much like the rise of the internet.
This technology will bring with it all kinds of complex policy questions around governance, international law, security and economics.