It’s the technology behind the number one cryptocurrency Bitcoin, it’s heralded as the next technological revolution, and it has companies in fields as diverse as cattle farming and artificial intelligence excited – but what, exactly, is the blockchain?
Invented in 1991 by computer scientists Stuart Haber and W. Scott Stornetta, blockchain technology is exactly what it sounds like: a chain of blocks. Each block, in the case of a cryptocurrency blockchain as first proposed by pseudonymous Bitcoin creator Satoshi Nakamoto, contains a series of valid transactions plus a cryptographic hash validating the previous block in the chain. As time goes on the chain extends one block at a time, with each block ‘locking’ the previous block through its cryptographic hash.
Unlike a traditional database or spreadsheet, which the blockchain otherwise resembles, a blockchain has a number of benefits: it is typically decentralised, meaning that it has no one controlling entity; it is distributed, meaning that it can withstand considerable interference from networking issues or censorship; and it is secure.
The security of a blockchain comes from the effort an attacker needs to exert in order to change past transactions. Where a traditional database will allow you to go back and edit any entry at any time, to edit an entry in the blockchain you would need to not only edit the block in question but every block that follows.
For so-called “proof-of-work” blockchains which require considerable computational effort to process, of which Bitcoin is one, editing the chain is near-impossible. An attacker would need to control an overwhelming majority of the computing power – the “miners” which process the blocks and secure the blockchain in exchange for cryptocurrency rewards – and ‘race’ the true blockchain in order for the edited entries to be considered valid. The further back in the blockchain you go, the more computational power you need to rewrite history – a major reason for transactions to require a number of “confirmations”, or blocks since the transaction was first entered into the blockchain, before being considered valid and irreversible.
Blockchain in Industry
While the first and, so far, most popular application for blockchain technology is cryptocurrencies, the technology has considerable potential elsewhere. Companies like IBM and Microsoft are working on products which use blockchain technology for everything from identity tracking and document security to the secure management of clinical trial data and parametric insurance.
Organisations like the Government Blockchain Association (GBA), meanwhile, are actively promoting blockchain technology as a means of improving various government services and functions around the world, with the Swedish, Russian, Kenyan, Singaporean, US, Indian, and German governments having announced or actively begun blockchain technology trials in the last year alone.
Not all blockchains are equal, however. The Bitcoin blockchain is designed to be permissionless, open, and decentralised: anyone is free to enter a transaction into the blockchain, view, and process its data, without the need to ask for permission first. It’s this aspect which gives the Bitcoin blockchain its immense flexibility, but also renders it ill-suited for tasks which involve true anonymity or privacy – a fact which has given rise to more private cryptocurrencies such as Monero.
The blockchains being trialled by world governments and large enterprises, meanwhile, do away with many of the advantages of the technology in favour of secrecy and control: they are typically heavily centralised, accessible only to those with authorisation, and are not usually available for third-party exploitation and experimentation.
While arguments continue over the validity of cryptocurrencies as an adjunct to or replacement for the traditional global system of fiat currencies, one thing is clear: blockchain technology is here to stay.