If you’ve been paying the remotest attention to trends in technology, then you’ve probably heard of Bitcoin. This digital currency attracted considerable mainstream attention over the winter, thanks to its skyrocketing value, and so grandchildren across the country were forced to bluff their way through conversations on the topic over Christmas dinner.
But what isn’t so widely-discussed is the technology that makes Bitcoin possible: namely Blockchain. While the pseudonymous Bitcoin inventor Satoshi Nakamoto is widely assumed to have created Blockchain, the idea was actually first postulated in the early nineties as a means of preventing documents from being backdated. Whatever its history, Blockchain looks poised to make big waves in the future.
Blockchain is a system of ledgers, which are copied and stored at multiple locations (in the case of bitcoin, millions of them). This decentralised architecture, as we’ll see, allows for considerable benefits in myriad applications.
Each Blockchain, naturally, is made up of chains of units called blocks. Each of these contains some data, a unique identifier called a hash, and the hash of the neighbouring block. The latter two pieces of information are what allows the blocks to form into a chain.
The data being stored varies according to the type of blockchain; in the case of Bitcoin, it’s transaction information, but it could equally be just about anything else. Whenever this data is altered, the block assigns itself a new hash. Thus attempts at tampering with the data on a given block will invalidate the entire chain.
Very clever, you might think. But it doesn’t end there. This alone isn’t enough to keep things secure – a sufficiently powerful machine might be able to recalculate all of the blocks in the chain, thus allowing an attacker to cover their tracks. A mechanism called ‘Proof of Work’ makes adding a new block to the chain artificially difficult by requiring that a very complicated calculation be performed. In the case of Bitcoin, each calculation takes around ten minutes. Multiply this by the number of blocks in a given chain, and you start to see how difficult it would be to mess around with the protected data without being noticed!
Information about the blocks in the chain are distributed amongst an open peer-to-peer network. Everyone in the network is given a copy of the ledger. Whenever a new block is created, it’s sent to everyone – and a consensus can form about which blocks are genuine and which are fraudulent. There’s no single point of failure anywhere, and thus a blockchain is far more robust than a centralised network.
You might be wondering how relevant all of this might be to your day-to-day life. Let’s consider some of the advantages.
One of the most obvious benefits of blockchain is that it’s inherently secure. This is so because of the amount of redundant ledgers. A sophisticated hacker might be savvy enough to break into a single database and wreak mischief. But doing the same thing to every ledger in the world is not quite so easy – especially if there are millions of them.
Another potential application lies in peer-to-peer trading. In recent years, companies like eBay, Uber, Airbnb, and People Per Hour have allowed loose networks of individuals to collaborate and trade with one another. These networks are centralised, with every transaction taking place through an intermediary. This provides both the buyer and seller with a measure of security. No-one, after all, wants to hand their hard-earned over to a complete stranger without some assurance that the transaction is legitimate and protected.
The secure nature of blockchain removes the need for such middlemen. These business models will therefore need to adapt to avoid being made redundant. In such a decentralised world, personal reputation could become even more important than it is now. Crowdfunding sites like Gofundme and Kickstarter are likely to undergo a similar revolution.
Older readers might at this point be raising an eyebrow. Whenever self-described ‘futurists’ are clamouring about how some technology or other is going to revolutionise this or that, it’s usually a sign that a bubble is inflating. Thus, however inviting the waters of blockchain might be, many businesses are wary of dipping their toes in, lest they be swept away on a tide of cryptographic hype.
In this case, however, there’s reason to be cautiously optimistic. Blockchain has earned the recognition of some big names. Larry Summers, a former US Secretary of the Treasury under the Clinton administration, predicted in 2016 that “40 years from now, blockchain and all that followed from it will figure more prominently in that story than will bitcoin.”
For blockchain to work, a cultural change is required. Human decision-makers will need to see the technology in action and become convinced of its merits. Only when enough of them do so and invest in the technology should we expect to see it widely-adopted. For the moment, it looks like a matter of when rather than if.