Blockchain and the Future
Blockchain is most well-known as the technology underlying cryptocurrencies like Bitcoin, but it also has many other use cases. Over the past few years, there has been a surge of interest in blockchain, and many tech-leaders now believe it has far greater potential than previously realized.
At its core, a blockchain is simply a ledger of transactions - individual segments of information stored in a digital, encrypted fashion. However, it's the unique way in which blockchain technology uses a widely distributed network of computers to achieve autonomy, security and verification that gives it true value.
Older Than You Think
Back in 1982, cryptographer David Chaum presented the idea of creating a computer system that can provide trust amongst "mutually suspicious groups." The basic idea was to design a secure system that can accurately self-process transactions while remaining immune to interference from a single individual.1
This idea was further developed in 1992 by introducing tamper-proof timestamps and Merkle trees, a hierarchical way of collating documents into blocks for improved efficiency. However, it was not until the pseudonymous individual(s) Satoshi Nakamoto introduced Bitcoin in 2009 that blockchain found its first real-life use case.
A Quick Outline of Blockchain
A blockchain network is made up of ‘nodes,’ usually individual computers, that support the operation of the system. Typically, the larger a network is, the more secure it is, as it would require more computing power to infiltrate.
In a traditional 'proof-of-work' (PoW) blockchain like Bitcoin, several users known as miners provide computing power to validate transactions and receive small amounts of Bitcoin in return. In more modern 'proof-of-stake' (PoS) blockchains like Ripple (XRP), nodes enjoy governance powers based on the level of network investment that they hold (their 'stake').2
There is now a wide range of different consensus algorithms being developed, with many private or corporate blockchains using proprietary means of governance. However, whether public or private, all blockchains comprise a distributed node network that uses strong encryption and some form of consensus.
Blockchain's Powerful Key Features
The following three features define the core foundations of blockchain technology, however, there are several other features that add additional value to blockchain networks.3
Immutability is one of the most important features in a blockchain network as it ensures the data on the network is incorruptible. To fraudulently alter any data on the blockchain, one would need to decrypt the most recent block faster than it takes the entire network to create another block - a feat that would require more computing power than the rest of the network combined. While this is a hugely beneficial and powerful characteristic, it means that any information entered incorrectly into the blockchain becomes permanent and unalterable.
The decentralized nature of blockchain technology makes it an entirely autonomous system, with no single entity holding absolute power over the network. To facilitate the verification of transactions, all nodes on the network must confirm the validity of the transaction. For cryptocurrencies like Bitcoin, this means no government agency, central bank or financial institution has control over any transaction or other activity on the network.4
Transactions on public blockchains are visible to anyone with an internet connection. In most cases, the network will encrypt personally identifiable information but leave other transaction details publicly visible, eg: the date, time and amount of Bitcoin sent. This is a vital feature that forms the foundation of a trustless, decentralized network. However, this feature is usually not present (or necessary) on private blockchain networks like those used by most businesses or institutes.
Real-life Use Cases
Smart contracts provide a way for two parties to execute a contractual agreement in a secure and guaranteed fashion with no human oversight.5 Businesses have found they can use this feature to automate mundane business processes, saving the company both time and money.
However, the initial formation of a smart contract is a detailed process that requires extensive testing and is, unfortunately, still prone to human error. Despite these shortfalls, several companies have already seen the potential of smart contracts in beta-testing phases.
One of the most widely touted benefits of blockchain is its ability to conduct fast and efficient cross-border payments.6 Such payments usually involve multiple banks and require verification by several employees, resulting in a time-consuming and costly exercise. Different time zones, currency liquidity and verification checks are all factors that slow the process down.
With blockchain technology, you can conduct a currency transfer almost instantaneously and at a very low cost by removing the need for any financial institution or individual to verify the transaction. The real-time gross settlement system Ripple is one of the most well-established companies already using blockchain technology for international remittance.
Many supply chain companies like popular logistics firm Maersk have already begun implementing blockchain technology with impressive results.7 Supply chain involves the tracking of goods from origin to destination through multiple countries, with delays often caused by logistics and administration problems.
A blockchain network can provide a single, immutable database that is both secure and accessible by all parties. It removes any issues related to paperwork or incompatible software platforms and has additional benefits like quality control and monitoring.
Cybersecurity has become one of the most pressing issues of the 21st century, with security specialists scrambling to stay one step ahead of potential threats. As more and more financial activity moves online, incidents of database hacks and identity theft are on the rise.
Blockchain offers a more secure way of storing digital identity information like facial recognition data and biometrics.8 A blockchain-based system has the potential to verify a user’s identity autonomously with minimal risk of fraud. Basic cryptocurrency transactions already achieve this goal to some extent, but engineers envisage a far wider range of applications for the technology, including electoral processes, patents, real estate records and intellectual property.
Facing Future Challenges
While the future of blockchain technology looks bright, there are several drawbacks that still need addressing. Some of blockchain’s strongest features also create some of its biggest issues. Most notably, its immutable nature means it is difficult, or often impossible, to alter incorrect information once it’s stored on the blockchain.
Blockchains also become increasingly large over time, which can cause storage issues and heavy use of resources to access the network. Certain consensus algorithms are already challenging this issue, but it remains a work in progress. In many public blockchains, the core algorithm cannot be changed without splitting the chain and compromising the network. This results in a lack of scalability and is one of the key factors that threaten to one day render Bitcoin obsolete.9
As engineers work to address these issues and several others, we expect blockchain technology will grow to accommodate new political, financial and geographical demands.
Boost Your Blockchain Skills
Blockchain is still in its infancy, but we’re beginning to see its true power and the reach it can have across many industries. Now is the time to become familiar with this technology and set yourself apart from the competition in the job market.
1. Retrieved on September 21, 2020, from en.wikipedia.org/wiki/Blockchain#History
2. Retrieved on September 21, 2020, from hbr.org/2017/02/a-brief-history-of-blockchain
3. Retrieved on September 21, 2020, from 101blockchains.com/introduction-to-blockchain-features/
4. Retrieved on September 21, 2020, from blockgeeks.com/guides/what-is-blockchain-technology/
5. Retrieved on September 21, 2020, from cointelegraph.com/ethereum-for-beginners/what-are-smart-contracts-guide-for-beginners
6. Retrieved on September 21, 2020, from forbes.com/sites/forbestechcouncil/2019/03/12/how-blockchain-is-transforming-cross-border-payments/
7. Retrieved on September 21, 2020, from techrepublic.com/article/5-companies-using-blockchain-to-drive-their-supply-chain/
8. Retrieved on September 21, 2020, from ibm.com/blockchain/solutions/identity
9. Retrieved on September 21, 2020, from en.wikipedia.org/wiki/Bitcoin_scalability_problem