Blockchain: What it is and why should you know about it

Mar 20, 2018 | Digital Marketing, eCommerce, Featured

Much of our lives takes place in a digital world.

We buy and sell online, engage in social interactions, take classes, pay bills, and participate in a multitude of other activities. The problem that often arises with situations that rely on the digital information is a diminished trust.

In a constant effort to instill that sense of trust, we often look to neutral third parties to ensure the integrity of a situation. For example, when conducting financial transactions, we look to our banks to keep our money safe. When buying or selling online, we look to services like PayPal to ensure we don’t get duped by the person on the other end. Unfortunately, many users have fallen victim to the lack of security protocols on the web. According to the Pew Research Center, 64 percent of Americans have experienced a major data breach of some sort.

What’s the answer? Many experts are speculating that blockchain technology could help increase cybersecurity and might be the way to securing the trust that we are lacking in the digital realm.

How blockchain technology works

Blockchain technology was originally developed in 1991 as a way to timestamp digital documents and prevent them from being back dated. This prevented tampering or modification of records so that those records could be trusted by users. Although blockchain technology has been around for some time, it didn’t gain a large amount of notoriety until bitcoin. Bitcoin adapted the blockchain technology in 2009 to store information across a network of multiple personal computers, allowing for direct financial transactions without the need for a governing authority. This decentralizes the system by distributing it across numerous computing devices.

No central company, system, or person owns the information stored in the blockchain. Instead, the blockchain is disseminated to every computer that joins the network. This decentralization means that the information is open to everyone and can be verified by anyone; in effect, allowing everyone to use it and help run it. What makes blockchain so unique and important is that no one entity can change the information. This makes it nearly impossible for the system to be taken down or corrupted.

The numerous people who run the system store bundles of information on their computers. These bundles are called blocks. For bitcoin, these blocks are financial transactions; however, the information stored in these blocks can be anything that needs to be kept secure from tampering (such as voting records or personal identification documents). These blocks are stored in a chronological order called a chain. Hence the name, blockchain.

Why the blockchain encourages trust

Trust is an issue with any service we seek or relationship we develop. The blockchain’s sole purpose is to ensure users of the integrity of data and to promote trust using fixed information. The blockchain uses a form of math called Cryptography to ensure that the data in each block cannot be counterfeited or changed by anyone else.

Here’s how it works: Each block is assigned something called a hash. The hash is just a long, independent, random number that is assigned to the block. The hash is like a fingerprint and is unique to that particular block. The block also stores the hash of the block before it in the chain. When a block is modified, the hash changes. So, if a block is modified or removed, the blocks in front of it recognize that the hash numbers don’t match. When there is a mismatch, the chain becomes invalid at that mismatched block. Similar to cutting a single link on a chain, the chain becomes useless after that point. In addition, there is also a proof mechanism that helps verify the blockchain by limiting how quickly a block can be created.

To make blockchain even more secure, all of the users on the network get a full copy. When a block is added, it’s added to everyone’s blockchain. Therefore, everyone’s blockchain remains identical. This synchronization makes a consensus and verifies the legitimacy of the blockchain.

Blockchain and the future

Even though the blockchain technology is currently used primarily for cryptocurrencies, it has other applications that offer exciting possibilities. Blockchain will allow us to better secure our online identities, help track the trillions of devices that are on the internet, allow companies to run without human interactions, and even help make self-driving cars safer. The possibilities present compelling opportunities for how we interact with the digital world.

To make blockchain even more secure, all of the users on the network get a full copy. When a block is added, it’s added to everyone’s blockchain. Therefore, everyone’s blockchain remains identical. This synchronization makes a consensus and verifies the legitimacy of the blockchain.