Anyone who has even a passing interest in cryptocurrency has probably heard the word ‘blockchain’ branded about. And no doubt many of those who know the term also know that blockchain technology is behind Bitcoin and many other cryptocurrencies. But what else do you know about blockchain? How does it work? What uses does it have? And what about blockchain’s prospects in the future? All is revealed in this article.
What is Blockchain Technology?
Blockchain technology can be defined as a system of decentralized public ledgers that store transactions. This transactional information is stored in chains of blocks – hence the name ‘blockchain.’ These computers on the network share this information through cryptography.
Blockchain is used for a variety of functions. In addition to cryptocurrency, it is also used for things such as healthcare, smart contracts, supply chains, and electronics. Firstly, let’s look at how blockchain works.
How Does Blockchain Work?
All information on the blockchain is stored in blocks. These blocks don’t have any central entity owning them, they are decentralized. Several elements make up the workings of the technology behind blockchain.
The whole premise of blockchain is focused on its decentralized nature. It is this idea that gave birth to Bitcoin in 2009. Preceding this, on October 31, 2008, was the publication of the Bitcoin whitepaper, entitled Bitcoin: A Peer-to-Peer Electronic Cash System, by its pseudonymous creator, Satoshi Nakamoto. In the whitepaper, it lays out how Nakamoto envisaged blockchain technology would work and his vision for a monetary system away from the reaches of banks; a system for the people.
Nakamoto proposed a ‘purely a peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.’ On January 3rd, 2009, the genesis block on the Bitcoin blockchain was created. This was the first step in revolutionizing the traditional, centralized, bank focused financial systems as we knew them.
Nodes – What are they?
Nodes are computers that connect to each other through the public ledger that is a blockchain network to share information.
Each node stores a copy of the blockchain and verifies every transaction made on it. As every node on the blockchain would need to change their records of the information stored, the tampering of information is a rare occurrence.
These nodes play an important part in the Bitcoin mining process because, in the absence of any central entity, it is the job of these nodes to align in agreement to confirm the validity of a transaction on the network.
Only when this verification happens can a block be added to the blockchain, and miners can get their rewards (on the Bitcoin blockchain, this is currently 6.25 BTC after the most recent Bitcoin halving.) How these nodes form a consensus is through consensus mechanisms. The ones mostly used in cryptocurrencies are Proof of Work (PoW) and Proof of Stake (PoS). The most commonly used out of these two is PoW, which Bitcoin uses, and other cryptocurrencies such as Litecoin.
PoW and PoS are the main two consensus mechanisms in crypto, but others exist as well.
PoW: This involves miners competing against one another in order to solve a complex mathematical problem known as a hash. By doing so, a miner validates a new block on the blockchain and receives a reward in the form of a new Bitcoin.
PoS: Opposed to PoW, the ‘winning’ miner in PoS is chosen at random. However, the higher the stake a miner has, the more chance they have of being chosen. This will be implemented on the Ethereum 2.0 upgrade.
Delegated Proof of Stake: This is different from POS in that delegates are effectively elected to mine new blocks and ensure consensus rules are maintained. If they fail to do their jobs properly, they can be voted out just in the same way politicians can be. Cryptocurrencies such as EOS use this consensus mechanism.
The process of cryptographic hashing is fundamental to ensuring the security of a blockchain. It involves one-way encryption of data to a unique piece of text and is a process that cannot be reversed. On the Bitcoin blockchain, the result of the hashing process is a 64 character piece of text called a hash.
Can Blockchain Be Hacked?
As the unique piece of text cannot be reversed to decipher the original data, blockchain is seen as being very safe from hackers. On cryptocurrency blockchains, hackers can launch something called a 51% attack, where they attempt to gain more than half the hash rate (computer power) of a blockchain’s network. If they are successful at doing this, they can block or even reverse previously confirmed transactions, meaning they can ‘double spend’ coins (spending a coin twice).
Although the Bitcoin network has never been subjected to a successful 51% attack, other cryptocurrencies have fallen to one. One such example was in May 2018, when the Bitcoin Gold network fell victim to a 51% attack, resulting in the loss of $18 million worth of the currency. Thankfully such events are very rare, due to the sheer amount of hash power needed to conduct an attack. So the hacking of a blockchain isn’t impossible, but it’s very unlikely.
How is Blockchain Used?
We all know cryptocurrencies use blockchain, but what else in the world benefits from the wonders of blockchain technology?
As already explored, the blockchain forms the fundamental underpinning of what defines a cryptocurrency: a decentralized asset free from the shackles of a central entity. Bitcoin may be the most popular cryptocurrency, but really it is just the tip of the iceberg. A multitude of coins, from altcoins, to stablecoins, to DeFi tokens, today are in existence thanks to the technology invented by Satoshi Nakamoto.
Sensitive medical data of patients has been the target of hacking from electronic health records (EHRs) and used to steal or impersonate identities or sold on to third parties.
Through advanced cryptography, blockchain can put an end to this. Records can be added to a trusted and secure blockchain, becoming longer over time, and when new ones are added, a consensus is needed, thus making it very difficult to break, and hence be hacked into.
Health Wizz is one company that is using blockchain to give patients complete control of their medical data. A decentralized mobile platform, it allows patients to manage their health information and sell to third parties if they wish, in return for tokens.
There have also been shortcomings in EHRs in terms of doctors accessing patient information that comes from another institution. This is because in some countries, different manufacturers often provide different EHR software for different institutions, and there isn’t interoperability between them. Although a single, comprehensive system would be beneficial to doctors and patients, this would reduce the ability for the companies to charge extortionate fees.
Attempts have been made to bring together EHRs under one system in many countries, but this has proven often to be a doomed process. In the UK, an attempt to create a linked patient data system for the whole of the National Health Service was abandoned in 2011, costing nearly £10bn.
Blockchain could allow for a singular patient-owned EHR system, where their information is transmitted safely and securely to different financial institutions, and be accessed as soon as new data is added to it.
Although it should be remembered that blockchain won’t replace the EHR itself – it has seven transactions a second, compared to an EHR which can have up to 12,000. It will, however, be able to act as an extra layer for additional functions, and prove that records are complete and unmodified, and record patient consent when it comes to data sharing.
A smart contract works in the same way any contact would work but through a blockchain, which takes away the need for any third-party intermediaries. Only when pre-set conditions (that have been set in the computer code of the blockchain) are met, does a transaction within the contract take place. Smart contracts were first established on the Ethereum blockchain in 2015. Today, they have many uses including:
Smart contracts can make insurance claims a quicker and cheaper process because their use can help to clearly define when objective criteria are met. This may not be the case when it is the decision of lawyers if criteria have been met, as this may make the process more subjective. This in turn could lead to a longer and more expensive claim process.
Supply chains can become easier to manage through the use of smart contracts. As with insurance claims, they can take away any subjectivity and make it easy to verify if set targets are being met within the blockchain.
Again in healthcare, smart contracts have the potential to revolutionize the complicated prescription drug supply market in the US by cutting out middlemen, thus considerably cutting costs for consumers.
Smart contracts can make the ordeal of buying and selling a house a lot less stressful. By cutting out the need for a middleman such as a housing agent, buyers can now handle transactions with a potential seller all by themselves. Once the conditions of selling a house are met, the purchasing of the property can be done solely through the use of a smart contract.
Believe it or not, the wonders of blockchain technology have even infiltrated the video game industry. In 2017, a game was released called CryptoKitties. The premise of the game was you breed, buy, and sell virtual cats. It may not be everyone’s cup of tea but what made this game so eye-opening was that it operated on the Ethereum blockchain.
Since then, blockchain technology has become increasingly adopted in the video game industry, albeit this adoption is still in its early days. Collectible card games, such as Gods Unchained, have led the way in adopting the technology. In this game, gamers can trade collectible cards online by using an Ethereum wallet such as MetaMask.
Blockchain Use in the Future
The exciting reality is that the potential of blockchain technology has only just begun to be untapped. It really is just the beginning of the journey. Let’s look at some ways in which blockchain technology may develop and affect our lives in the future.
Improving Global Living Standards
Blockchain technology can help to alleviate poverty and corruption, and give financial inclusion to those who are unbanked.
Besides, blockchain technology also provides tremendous growth potential for small businesses in developing countries. And with the decentralized nature of cryptocurrency allowing many of them for the first time to truly operate on a global scale.
This is something that has already been started to be implemented, but it is likely that in the future, the move towards maintaining online identities through blockchain technology will excel. By storing personal database information on a public, distributed ledger, the risk of identity fraud will be greatly reduced.
As already explored, blockchain has massive potential in changing the way healthcare records are met, but it is likely to extend to government records, employment records, tax records, and even voter records.
In the 2020 US Presidential Election, allegations of voting fraud were made. Blockchain could put such claims to bed in the future. Binance CEO CZ argued on Twitter that using a blockchain-based voting system would not only eliminate any doubts over fraud, but also enhance the privacy of voters:
As we know, at the heart of blockchain technology is its decentralized and transparent nature. As the technology becomes more widely adopted, this is likely to be reflected in the way companies operate. It will become harder and harder to conceal information, which can only be good news for the consumer.
The internet has of course changed the way we listen to music, and from the artist’s point of view, not necessarily for the better. Since Napster burst onto the scene in the late 90s, music piracy has been rife.
Even with the advent of legitimate streaming services such as Spotify, income for artists has paled into significance compared to the days when fans bought CDs (and going further back) tapes in their droves. But could blockchain shift the pendulum back?
The transparent nature of a blockchain could show for all to see what royalties artists are owed. Steaming services would no longer be able to short change them. Also, blockchain technology could help any intellectual property rights issues artists may have, by clearly indicating without any ambiguity who owns the rights to songs.
The Bottom Line
Simply put, blockchain is a revolution that is only just getting started. It is changing traditional ways we’re living our lives and has already revolutionized the way we think about money as digital assets, but in the years to come, it will revolutionize the way we think and act in many areas of our lives.
Not only does its anonymity offer an extra level of protection for information, it also offers convenience for accessing information like never before. Blockchains give the access of information freely available to everyone.
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