You may have heard of blockchain technology, but perhaps you don’t really know what it means or how it is used, just that it has something to do with the cryptocurrency phenomenon, Bitcoin. Can blockchain technology have other applications apart from the cryptocurrency example?
What is blockchain technology?
It can help to understand blockchain technology by breaking it up into two main parts:
The chain
Transactions are recorded sequentially using cryptographic security, with each new transaction appended to the “chain” of transactions including a reference within it to the “block” preceding it. This means that each block is interlocked to the next one and cannot be changed/removed without each of the blocks being affected, like a chain reaction. This is significant for having a reliable record of the chain of transactions – none can be changed, modified or tampered without compromising the whole chain.
The distributed “database”
The integrity of the whole blockchain is upheld by distributing a copy of the transaction record to many servers or nodes, so that there is not just one location where the blockchain record is held. This means that the blockchain record is checked and mirrored in multiple locations, ensuring that the entire record cannot be changed, tampered with or replaced as it would no longer agree with the other copies in the distributed “database”. This provides another layer of security and integrity, meaning that data is not reliant on one location or party and is less vulnerable to hacking. This is known as a distributed ledger.
Integral to blockchain technology are smart contracts, which are the conditions that are agreed upon by the members of the network using the particular blockchain application. These are digital agreements saved into the blockchain that automatically execute transactions and store the information onto the distributed ledger, increasing efficiency and saving time and money, in many cases, cutting out the “middle-man” altogether.
Why use blockchain?
The key advantage with blockchain technology is the increase in integrity, trust and transparency that it brings to its applications. This can have a number of obvious applications to industries such as cryptocurrencies, inter-country financial transactions, shipping of goods domestically and internationally which go through many handlers and customs, legal contracts and food distribution.
What are the obstacles?
Many people still don’t understand blockchain enough to invest in its development and application in their businesses and industries. Until there are more tried and true cases in like industries, many will be cautious to invest in blockchain technology for their business. What is also true, is that the data stored to a blockchain must itself be accurate, if there are errors or misinformation recorded in the first place which are not corrected by a further addition to the record, then the mistakes are carried through – rubbish in, rubbish out. Another criticism of blockchain technology is that it is an inefficient use of storage space across a network, as the record is duplicated across many nodes.
Blockchain technology will be one space to watch in the next couple of years as it is further developed and accepted across a wider sample of industries.