What is blockchain?
Blockchain technology is commonly associated with Bitcoin and other cryptocurrencies, but that’s only the tip of the iceberg. Some people think blockchain could end up transforming many important industries, such as telecom, real estate, insurance, health care and politics.
Basically, blockchain is a type of shared immutable ledger for recording the history of transactions. Blockchain technology offers a way for untrusted parties to reach agreement (consensus) on a common digital history. A common digital history is important because digital assets and transactions are in theory easily faked and/or duplicated. Blockchain technology solves this problem without using a trusted intermediary.
Imagine a ledger that is shared in real-time with millions of others that shows every transaction in a continuously growing list of transactions.
To secure this public ledger, encryption keys are used for each entry that ties to the next entry, which forms a “chain” of interconnected entries to the ledger.
Any attempt to modify an entry would result in the “breaking of the chain,” which would clearly be noticed by the millions of other connected ledgers that had the authentic entry, and the offending computer gets “kicked” from the ledger.
This decentralized ledger also eliminates the middleman; therefore, transactions become one-to-one, instantaneously. It’s why so many large “gatekeeper” companies are downplaying the value of this technology.
Why we need blockchain?
A paper record is prone to forgery and/or physical degradation. Centralized databases are prone to hacking, human error, and/or tampering. A blockchain means there is no single entity controlling the ledger. Therefore, recording physical assets on a blockchain is a prime example of where the technology might come in handy to track ownership with a tamper-proof, neutral, and resilient system.
Today’s private ledgers — whether it’s in banking, real estate, taxes or health care — require us to “trust” the organization that controls it. This middleman model is also how so many global organizations have become so powerful; we’re required to use them, trust them and pay them in order to execute a transaction. Blockchain technology offers a perfect alternative without any intermediators in between, tending to supply the most cost-effective service.