What is Blockchain Technology (In simple terms)
Over the last few years, the media, finance and tech sectors have been buzzing with news about Blockchain technology, cryptocurrencies and bitcoin. Everyone is excited about the transformative potential of the technology but to many people, it can seem extremely technical and inaccessible. In fact, many people simply dismiss the technology as a passing fad simply because they don’t understand exactly what it is and what it can offer. Blockchain is not a company or an app, but a new standard of technology that changes the way we store and use data on the internet.
Is Blockchain a type of cryptography?
Blockchain is not the same as cryptography, though it does use a form of cryptography as part of its technology. Cryptography is a form of encryption that is used to secure data. In fact, we already use it every day in some of our smartphone messaging apps. Blockchain technology uses cryptography to ensure the security and privacy of its users and their data.
What makes Blockchain unique is the kind of cryptography it uses. Rather than using a single key for both encryption and decryption, as standard private-key encryption does, Blockchain uses a combination of a public key and a private key to ensure data security.
This is how the process works: when encrypting data, a user’s public key and private key are both used together to lock the information. The recipient will need their own private key, as well as the sender’s public key, to unlock it. The system is designed in such a way that it is impossible to work out what the private key is based on the public key.
In effect, a user can send their public key to anyone without worrying that someone will gain access to their private key. That means the sender can encrypt and share their files, completely confident that only the intended recipient can decrypt them.
To strengthen security even further, Blockchain also utilises a ‘digital signature’, a mathematical algorithm that combines a user’s private key with the data they want to sign. Even the slightest tampering or editing of the data will corrupt the signature and the system will refuse to recognize it. This way, Blockchain can guarantee that any data being recorded onto it is legitimate, accurate and untampered with.
The same feature is what makes cryptocurrencies so secure. But it is important to understand that Blockchain and Bitcoin are NOT the same. There’s a lot of confusion around this because the two technologies are very closely related.
Since Bitcoin was the first application of Blockchain technology, a lot of people assume they are the same. A lot of progress has been made since then and the underlying Blockchain technology has been extended to many different sectors and applications.
How does Blockchain Technology work?
To get a deeper understanding of how Blockchain works, let’s take a closer look at the Blockchain structure and its three most important parts: a network of computers, a network protocol, and a consensus mechanism.
Blockchain runs through a network of computers connected to the internet, and a particular Blockchain can be public or private. Each computer is called a ‘peer’ or ‘node’ and makes up one part of the network of participants in the Blockchain.
A network protocol is basically the rulebook that determines how those nodes connect to each other. Typically, each node has its own copy of the Blockchain so there’s inbuilt protection against mistakes or fraud.
Finally, the consensus mechanism is the process by which a Blockchain network verifies transactions and comes to an agreement on what the current, accurate Blockchain is.
What is a block in Blockchain?
It’s helpful to think of blocks as individual pages in a digital ledger. A block records some or all of the most recent transactions that have not been written to any previous blocks. Each time a block is ‘completed’, it gives way to the next block in the Blockchain. A block is thus a permanent store of records which, once written, cannot be altered or removed. A chain of such related blocks is what gives ‘Blockchain’ its name.
Each time a block is completed, it gives way to a new block in the Blockchain. The completed block is a permanent record of transactions in the past and the new transactions are recorded in the current one. This creates a cycle and that enables the Blockchain to permanently store all past and current data records along with their relationships. This makes it nearly impossible for a user to alter any previously recorded transaction data. These blocks can be distributed across many or all the nodes in the network.
Is Blockchain distributed or decentralised?
In a Blockchain network, any given user not only utilizes the system but is also an integral part of the system itself. Nodes operate together without any hierarchy or central authority to manage them. Each node shares a portion of their computing resources such as storage space, processing power or network bandwidth with other users.
This method of data sharing is revolutionary. It means data is no longer confined to any one central location, making it far less vulnerable to being hacked, altered or lost.
No central storage also means there is no need for an authority to route everything through. That means the network cannot be controlled or monopolised by any single party. Instead, the user becomes the sole owner of (and fully responsible for) their personal data.
Blockchain, by its peer-to-peer nature, is designed to be a decentralised technology.
What is Decentralisation in terms of Blockchain technology?
As we discussed earlier, decentralisation in Blockchain means there is no one central processing authority that controls every transaction. All data and processing records and requests are distributed across the nodes in the network. To make sure the recorded data is genuine and authentic, both public and private Blockchain require a consensus mechanism among the nodes to establish the ledger.
Advantages of Decentralised Blockchains
Decentralized Blockchains, of which Bitcoin is an example, are highly secure because of the enormous amount of computational resources used to secure the Blockchain. That means to hack or attack the Bitcoin network, for example, the malicious party would need so much processing power that the attack itself would not be feasible. Another advantage of decentralisation is that anyone can use the network to send funds to any part of the world without relying on any financial institution or agent.
How secure is Blockchain technology?
Historically, we’ve always used paper to record and transmit information. Paper can be hard to counterfeit because of physical seals and any attempts at tampering leaving behind marks or tears.
But writing on papers, sorting them and keeping written records is a slow process. In any business environment where information changes quickly and frequently, paper is simply not fast enough. Entering information by hand is also very slow, prone to errors and cumbersome.
In the digital age, everything is stored as data: instantaneous, easy to access and quick to update. We’ve come a long way from the days of storing digital files on floppy disks and CDs. Now we can just use the cloud to securely record and log all our files, ready for access whenever and wherever we need them. Freed from any geographical constraints or the need for physical space, all our data, no matter how large, can be written, accessed and updated in real-time from anywhere.
But what exactly is the cloud? Essentially, the cloud is a distributed storage system. It stores your data remotely, sometimes across multiple locations and devices, and provides instant access no matter where you are actually located. Cloud technology changed the way we store and access data and is now a mainstream data storage solution.
But the system isn’t perfect. Maybe the server that hosts your data is geographically far away from your location. The server may also be down for maintenance or experience interruptions. This can cause delays and downtime. Cloud storage can also be expensive. Combined with running costs, maintenance, monitoring and support, the bills can really add up.
But the biggest risks of traditional cloud storage systems are privacy breaches and data tampering. Since the data is technically controlled by one authority i.e. the cloud hosting service, there is the possibility of data being compromised. A lot depends on the policies of the cloud service provider.
Also, such services rely on people to run and manage the system, which increases the probability of human error and puts your data at greater risk.
Blockchain has provided an alternative to this issue. A few small teams and organisations across the world have already started using Blockchain based cloud storage. Since every step of the entire Blockchain process is logged, time-stamped and automated, it significantly reduces the chances of human error. The involved node can’t be changed, so Blockchain-based cloud storage ensures that the data at all given points are accurate and traceable. This makes it an effective solution to the issues facing traditional cloud storage systems.
Enhanced efficiencies, no human involvement and transparent tracking mean lower costs as well.
The encryption protocols used by Blockchain are specifically designed to enhance security. Since each block in the chain retains its relationship to past and current blocks, Blockchain includes another layer of protection. Any tampering will result in that relationship history also being altered, causing the system to reject the alteration.
Who is using Blockchain?
Companies like FedEx are already using Blockchain to secure their logistics operations and track high-value cargo. IBM is already providing Blockchain-based solutions to companies like Walmart, Nestle SA, Unilever. Microsoft, MasterCard and the Bank of America have all applied for patents on various Blockchain applications they are in the process of integrating into their service models.
Blockchain and Web 3.0
The invention of Blockchain has created a potentially new ‘operating system’ for our entire information technology infrastructure. The current internet, or web 2.0, relies on central servers, intermediaries, institutions and gatekeepers to route, manage and control data traffic. Users have no choice but to rely on them. But Blockchain removes the need for those gatekeepers entirely. Blockchain and crypto enthusiasts are calling it the Web 3.0, which looks poised to make the current centralised model of the internet obsolete.
This is because the technology will drive the decentralization of the World Wide Web, breaking the hold of global tech monoliths like Google, Facebook, banking conglomerates and government institutions. Decentralisation will put data ownership back into the hands of the users as opposed to a select few organisations and remove the need for regulatory bodies or intermediaries.
What is an ICO Blockchain?
ICO, or Initial Coin Offering, is a means of funding and creating a new cryptocurrency. Essentially, a start-up offers investors some units of a new cryptocurrency or crypto-tokens in exchange for established cryptocurrencies like Bitcoin. These pre-created crypto-tokens can be easily sold and traded on all cryptocurrency exchanges if there is demand for them.
With the popularity of Bitcoin, a whole host of other cryptocurrencies have emerged, like Litecoin, Ethereum, and Lisk.
Currently, ICOs are unregulated, though this is quickly changing in many jurisdictions. But it has grown quickly in a relatively short period of time and has become a tool that could revolutionize not just currency, but the whole financial system itself. An ICO token could become the securities and shares of tomorrow.
As leaders in ICO development services, we have some special insight into this area. Our team of engineers, designers and specialists are skilled in developing an ICO from concept and development right through to execution. Blockchain Australia handles the development process in-house, managing ICO token development with cutting-edge optimised solutions end-to-end.
We discuss the specifics of Australian ICO development in more detail here.
Who will use Blockchain?
We have covered the potential of Blockchain technology, but let’s talk about applications. What sectors can it revolutionise? How will it transform business and government sectors? Let’s explore some use cases for the technology.
Blockchain cryptocurrencies are quickly finding use in the mainstream. As a real-world example, consider the case of Chiasso in Switzerland. This community on the Swiss-Italian border has recently allowed its residents to make small tax payments in cryptocurrency. While traditional currency is still preferred for bigger transactions, it’s a proof-of-concept of how governments may embrace crypto-friendly policies in the near future.
Digital voting is also an area where Blockchain shows a lot of promise. While digital voting can be susceptible to tampering, Blockchain voting technology is verifiable and would allow anybody to audit the Blockchain to confirm votes are timestamped and legitimate.
Another area ready for disruption is notarization. Blockchain timestamps could validate the exact time an action or event occurs in a resident’s life, from birth to death, from identification documents to educational certificates and ownership titles.
Transitioning to a Blockchain healthcare system would cut costs and improve security, privacy and sharing of health data. Being able to securely record and share data would mean doctors would have better access to patient records and medical histories, ensuring better outcomes for patients.
In a similar way, a Blockchain ledger can also be used for recording drug intake and distribution, regulation compliance or hospital supply chain management.
The idea behind asset tokenisation is quite simple: it allows you to convert the rights to any assets with economic value into a digital token.
These tokens can be stored and managed on a Blockchain network. Tokenisation can have tremendous effects on trading and investment by offering better transparency, liquidity, authenticity and exchange potential.
A smart contract is a code running on a Blockchain which contains a set of rules agreed upon by two parties. When the rules and conditions are met, the agreement is automatically honoured.
Smart Contracts are self-verifying, self-executing, tamper-resistant digital contracts that turn legal obligations into an automated process. This method guarantees a greater degree of security, reduces the reliance on intermediaries and thus lowers transaction costs.
Blockchain can record the amount of energy produced from devices like solar panels, assign a price and then distribute the energy to smart homes on the grid while recording incoming payments for energy purchased. On a larger scale, a national energy grid can use Blockchain databases to forecast demand based on previous consumption patterns.
Land Title Registration
With smart contracts enabling instant sale and ownership transfers, the entire property transaction can be carried out reliably without the need for an intermediary.
With the elimination of red-tape, application forms and bureaucracy, property transactions would not only be instantaneous but also far less costly.
Land Title Registrations recorded on a Blockchain ledger would be tamper-proof and always verifiable.
The biggest advantage Blockchain technology has in stock trading is the speeding up of transactions. Stock market traders and brokers have to go through a time-consuming and costly process which involves intermediaries, clearances and regulatory processes. Blockchain technology could streamline trading and make it near instantaneous.
Currently, financial transactions can be carried out on platforms such as Amazon Pay, PayPal and Google Wallet, among others. Many banks also offer their own apps to users, but always require them to enter their sign up/login details. Every time a user discloses this information, it gets stored on numerous internet databases which are vulnerable to hacks, leaks and theft.
Through Blockchain, Individuals can easily create a verifiable, tamper-proof, self-sovereign identity. It can be difficult to steal this identity from a user, reducing the risk of identity theft.
Supply Chain Management
The most critical factors for a supply chain and reliability and verifiability. Blockchain provides consensus: there can be no dispute or confusion in the entries because all parties on the chain have the same version of the ledger. Records on the Blockchain cannot be erased which is an important consideration for a transparent supply chain.
Data breaches and hacks have typically focused on a centralised database — either on location or in the cloud. Once the database or server is hacked, business comes to a grinding halt till the problem can be sorted out. In the Blockchain model, if an attacker breaches even one node, the others would still function and reject the altered node, so business can continue without pause. The same principle applies if there is a power outage.
On a global scale, decentralised crowdfunding has opened up a new world of possibilities for micro-investors. By using Blockchain tokens to represent projects, entities or products, investors no longer have to rely on financial service providers to legitimise shares and assets.
This tokenised system provides investors with much more flexibility to move and hold their assets than previously allowed.
The Future of Blockchain
Blockchain has already begun transforming the world of technology, even if adoption is still in its early stages. As the Harvard Business Review explains, “Blockchain is not a ‘disruptive’ technology, which can attack a traditional business model with a lower-cost solution and overtake incumbent firms quickly. Blockchain is a foundational technology. It has the potential to create new foundations for our economic and social systems.”
Bitcoin, cryptocurrency and Blockchain are still evolving. But like any new technology, once full-scale adoption begins, it will spread extremely rapidly. Currencies such as Bitcoin will become the Amazons and Facebooks of the future, and may even become the new backbone of the global financial system.
Do you need Blockchain?
One of the clearest and most immediate reasons major companies are embracing Blockchain technology is efficiency. It is also beginning to make document authentication obsolete, which removes a major step in the transactional process.
For data-sensitive companies, the inherent security and stability of Blockchain is a huge attraction, especially in the age of cyber-attacks and massive data breaches.
But the biggest reason companies are investing in Blockchain is because they don’t want to risk missing out on what could become a global-scale innovation. As an example, many companies ignored the rise of social media and then had to spend untold millions to play catch-up while their forward-thinking competitors were already reaping its benefits. They do not want to repeat that experience, which is why they are watching Blockchain so closely.
Even if you are uncertain about how Blockchain may affect your business, it is worth developing that capability in case it becomes key to your field. Deloitte and other consulting firms are already investing in Blockchain and bolstering their capabilities through partnerships and collaborations with specialists.
How Blockchain Australia Can Help your Blockchain initiative
Our professional team offers specialised expertise in Blockchain marketing to validate token development.
We also specialise in Cryptocoin Wallet Development, which is like a bank account that stores cryptocurrency securely and enables you to carry out cryptocurrency transactions safely and securely.
But our organisation goes one step further than that. We can also help you develop a Proof of Concept (POC) for your Blockchain project, where we work with our specialist partners to provide you with a solid outline and roadmap of your project feasibility.
We understand that not everyone is a technical expert, which is why our Blockchain consulting services provide engaging and comprehensive information, suited for every level of understanding, with the backing of skilled industry professionals at the forefront of Blockchain technology.
When it comes to Blockchain solutions, there is no one-size-fits-all solution. Every client has specific goals, and we will be more than happy to help you explore your options in this exciting new area.
Call us on 03-8582 8690 today to book a consultation and join the Blockchain revolution!