Blockchain | Part 1
The world had its first taste of blockchain tech in 2009, when it was introduced as the backbone of Bitcoin by the elusive Satoshi Nakamoto. They created the blockchain as a way to prevent double-spending in a digital currency system, and to allow users to take control of their own money.
Since then, it’s come a long way.
Prior to the creation of blockchain technology, if you wanted to send an asset from User A to User B, it would require verification through a trusted institution to establish that:
- User A has the asset available
- User A‘s asset is authentic
- User B has received the asset
- The asset is no longer available to be transferred by User A
The problem here is that everyone is completely reliant on a singular institution to verify the asset and transfer, which can be costly and take a long time.
Bitcoin’s success proves that singular institutions don’t need to be trusted, and that transfers can be completed successfully through a decentralized network. All devices in a blockchain network can verify each transfer and establish trust without the need to rely on a single party (e.g. a bank or clearinghouse). This makes for faster transfers, without intermediaries.
This is done using what’s called a ‘block’.
Think of a blockchain as a Netflix series you’re watching with a group of friends. You can’t go to the next episode without confirming that all members of the group have seen the prior one (a block). Everyone has that one friend who goes rogue and binges on half the series, or is too strapped for time to watch. When the whole group gets together to discuss the previous episode, they can see that these people have different information, and all reach the consensus, “That clearly didn’t happen in Episode 6!”
The graphics below give an excellent description of how it all works.
A wants to send B money
The transaction is represented online as a block
The block is broadcast online to every party in the network
Those in the network approve the transaction is valid
The block is added to the chain, providing an indelible and transparent transaction record
The money moves from A to B
With this method there are a set of conditions that need to be met. Each block in a chain contains information about the previous block before it, and so on. It can’t be changed, because all devices have a copy of the blockchain. All devices in the network can see the blocks, and verify their validity. In order for the system to be trusted and secure by users, in the words of Fleetwood Mac, “You would never break the chain”.
But, the most important question remains – how can blockchain be used in business? Keep an eye out for Part 2 of this article, where we’ll discuss Smart Contracts, the Internet of Value, and how to choose the right solution.