Are you curious about the underlying technology of Bitcoin and other crypto currencies? This blog explains that technology – blockchain – in plain English for new learners.
A blockchain is a structure that enables a digital ledger of data (a block) to be recorded, stored, and shared in a computer network environment. To process a transaction requested by a user, the network will validate the transaction, add the transaction to the current block of transactions, and chain the block into an existing blocks by hashing. Hashing means a computer generates a value from a string of text using a mathematical function. All access to the blockchain and controls are managed with software.
A blockchain network is composed of nodes that contain a complete record of all of the transactions that were ever recorded in that blockchain. The nodes are located throughout the network and can be operated by anyone who has access. For example, Bitcoin has a blockchain network with about 5,000 global nodes.
We often hear about blockchain in the context of digital currencies. However, its application is much broader than this alone.
For example, Chronicled, a San Francisco-based company, built the first IoT/Blockchain lab to help track the identities of fine art, consumer products, and luxury goods. An NFC chip with a unique identifier is embedded in a product. Blockchain is used to register the identifier and verify the legality of the product, so counterfeit goods won’t be able to pass this verification.
This is an attractive alternative to the current status quo of businesses having their own databases. Interactions between these databases are time consuming and require trusted third parties. For example, when we receive a check, we need to deposit it to a bank to transfer money from another bank into our account. When businesses move their data to a blockchain, the deposit, withdrawal, and access are going to be directly handled between a consumer and a supplier, therefore, a trusted third party is not required anymore. Additionally, it is very difficult to change or remove data when it’s in a blockchain. Therefore a blockchain enables trusted data and facilitates transparency.
This fundamental change is going to disrupt many industries. Therefore, basic knowledge of blockchain is important for business leaders. Digest the information above and stay tuned for my next blog.