Blockchain. No, we're not talking about a style of rapper neck jewelry.
It's the latest high-tech buzzword. Cryptocurrency companies, bitcoin investors, and computer nerds are well aware of what it's all about. But for the layperson, it can get a little confusing.
What many people don't realize is that blockchain is weaving into the inner workings of different types of companies every day. And as it continues developing and becoming more sophisticated, it's more important to understand how it will integrate into your IT department.
Interested in learning how blockchain is affecting IT?
Well, class is in session. Put on your thinking caps and enter the Blockchain 101 classroom.
What Is Blockchain?
Let's begin with a definition.
The typical description, given by those involved in the concept of blockchain since its inception is quite technical. See if this makes sense:
Blockchain is "an algorithm and distributed data structure for managing electronic cash without a central administrator among people who know nothing about one another.
Originally designed for the crypto-currency Bitcoin, the blockchain architecture was driven by a radical rejection of at [sic] (government-guaranteed) money and bank-controlled payments."
This according to Steve Wilson's explanation on ZDNet. And this is Wilson's attempt at explaining the idea in "plain English."
Um, huh? If you're like us, that's not the plain English you're used to.
So let's break it down using Blockchain 101 English.
Blockchain 101: The Ledger
Venture back for a moment to basic accounting class. Remember the ledger concept? A general ledger is a complete accounting record of a company's financial transactions.
The details within a ledger begin with the first transaction ever made and technically don't end as long as more entries are posted. It's the complete record of account status including both paid and received assets.
Now let's broaden the concept a little.
A distributed ledger records the details of the transactions above. The difference is that there's not a single original ledger, but multiple originals, so to speak. Multiple records of the same transaction exist as shared files across a series of computers or networks.
A distributed ledger is a decentralized entity. It's not managed by a centralized administration, bank, or government, or any individual.
That brings us to Distributed Ledger Technology (DLT). DLT is the electronic, or digital, system used to keep track of these transactions. And as we'll see, it's the technology upon which Bitcoin was built.
Blockchain 101: Digital Dollars
In the beginning - sometime in early 2009 - someone (possibly a person or group of persons) named Satoshi Nakamoto created a "peer-to-peer electronic cash system."
"Announcing the first release of Bitcoin, a new electronic cash system that uses a peer-to-peer network to prevent double-spending. It's completely decentralized with no server or central authority." - Satoshi Nakamoto, 09 January 2009, announcing Bitcoin on SourceForge.
"Few people know, but cryptocurrencies emerged as a side product of another invention. Satoshi Nakamoto, the unknown inventor of Bitcoin, the first and still most important cryptocurrency, never intended to invent a currency.
Bitcoin is one form of cryptocurrency (or digital dollars). Cryptocurrencies are exchanged digital dollars, or electronic payments, between two individuals. The transaction is completed directly (peer-to-peer) without the need for a third party (i.e. bank).
Blockchain 101: The Blocks
The blocks of a blockchain are bundles of transactions or cryptocurrency exchanges. They are, in a sense, sections of the entries from a ledger.
The thing that makes a block different from a basic series of line items is that the transactions within each block are anonymously verified by participants in the system.
No transaction can be added to a block without first being confirmed and accepted by a majority. And once added to a block, the record cannot be altered.
Blockchain 101: The Chain
Finally, the chain in Blockchain. This is (literally) where it all comes together.
Every bundle, or block, of transactions, is eventually chained to another block, and another, and another...
The sequence of the blocks in the chain are permanent. One block cannot exist without the one before it and the one after it. They are chained together.
Again, if we refer back to the basic ledger concept, every new block added to the chain contains not only the new transactions but the history of all the transactions (within their own blocks) that came before it.
This is one of the reasons blockchain is so secure. It's almost impossible to make a change without disrupting the entire chain, which will definitely be noticed.
The Future of Blockchain and IT
There are some obvious advantages to using blockchain as a way to track business transactions. And they don't necessarily need to be monetary transactions.
Let's look at a few examples of other businesses that will benefit from blockchain systems.
- Banking - more efficient, secure and accessible to everyone
- Cybersecurity - almost impenetrable data
- Supply chain management - follow a product from manufacture to purchase seamlessly
- The Internet of Things - eliminates the need for a centralised location to handle communication between devices
- Insurance Companies - the integration of smart contracts in an industry where trust management is at its core
- Cloud storage - information stored in a safer, secure environment is less susceptible to hacking
- Elections - tamper-proof voting
- Healthcare - medical records and other personal information stored securely
- Crowdfunding platforms - funds can be transferred directly from project backers to creators with no need for a middleman
- Intellectual properties - never dispute the origin of an idea, concept, patent
Using blockchain, each of these businesses can now create a peer-to-peer system of exchanging money, ideas, and information. The system is more secure, more transparent, and not controlled by any one entity.
Every one of those industries listed above will make use of or implement blockchain functions via their IT department.
Time to Graduate
Well, you did it. You've mastered Blockchain 101.
That's the good news.
Unfortunately, you're not finished yet. You see, the blockchain courses continue to grow in number. The same way the concepts, functions, and possibilities of blockchain continue to grow.
If you're ready to implement blockchain technology for your business but aren't exactly sure where to start, you've come to the right place. We'll take the Blockchain 101 test for you.
And we promise you'll get an A+.
Contact us to find out more about how we are helping companies develop safer infrastructures through blockchain.