Blockchain: What Is It and Why Does It Matter?

Written by Anthony Carter, Managing Director, Connotations Publishing Ltd. Published 2018-11-27 10:18:24

Technology has a way of introducing new words to the common vocabulary, words that may or may not retain their value over time. One such word is 'blockchain'. It is associated with cryptocurrencies like Bitcoin and Litecoin, and yet there is a whole lot more to blockchain than meets the eye.

The blockchain concept has the potential to completely revolutionize how data is exchanged over worldwide networks. Its potential goes far beyond financial transactions to reach into just about every data exchange on the planet. To say that blockchain matters is like saying computers matter. It is now ubiquitous to the point of being a major disruptor in the data-heavy universe in which we find ourselves.

A Few Blockchain Basics

The reason so many people continue to associate blockchain with Bitcoin is simple: Bitcoin developers are the ones who came up with blockchain to begin with. What we will call blockchain 1.0 was originally created as a distributed ledger system that allows for a continual record of transactions that are added, in blocks, to an ongoing chain of information.

In that sense, blockchain is similar to a database. Still, there are some major differences between a blockchain ledger and its database cousin. For starters, blockchain is decentralised. Where a company database might be hosted on a local or cloud server accessible to only those with the proper credentials, a blockchain ledger exists in multiple locations. They can be multiple locations in the same city, the same country, or even around the world.

Adding new information to the ledger is as simple as sending that information to every computer/server that has a copy of it. Each recipient updates its own copy after decrypting and verifying the new information. The new data becomes permanent once all copies have been updated.

Use outside of Financial Transactions

Blockchain has proven invaluable for the cryptocurrency sector for two reasons: it is highly secure, and its decentralised nature prevents any single entity from completely controlling it. The technology is also very robust in terms of reliability and redundancy. All these qualities make it ideal for so many applications beyond cryptocurrency.

Why does this matter? Because developers, engineers, and computer scientists are already developing the third and fourth generations of blockchain. They have figured out how to apply what is a normally a distributed ledger system to things like supply chain management, electronic medical records, employment and recruiting, software development, and so much more.

They have also figured out that blockchain is inherently scalable. Built-in scalability makes blockchain technology the perfect replacement for other, less scalable technologies. This has serious implications for data centres, which need to be equally scalable.

Speed, Stability, and Security

The biggest challenge to worldwide networks right now is security. Close on its heels is speed. Blockchain technology addresses both, which is ultimately why it matters to so many industries. Blockchain transactions can be cleared and finalized almost instantly. As such, those who have access to a particular distributed ledger can modify it in real-time as needed.

But wait, doesn't a cloud-based database offer the same thing? Yes and no. It is true that a database existing in the cloud can be modified by multiple people simultaneously, but there is always some latency involved. Moreover, there are stability issues given that all of the users active at any one time are manipulating the exact same database.

Remember, a blockchain exists as multiple copies of the same distributed ledger. Users are only modifying their copy. Their changes are then added to the end of the blockchain as they are submitted. This creates more stability without sacrificing speed.

In terms of security, every new bit of data added to the blockchain must be verified by way of something known as 'proof of work'. If someone tries to add an unverified block to the chain, it is rejected. This makes it very difficult to breach.

The long and short of it is that what began as a distributed ledger system to enable cryptocurrency transactions is applicable just about anywhere traditional databases are used. As blockchain's reach continues to extend beyond cryptocurrency, it is going to gradually overtake data storage and transfer. That's why it's important. That's why we should all care about it.

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