What is Blockchain?

Bitcoin and blockchain go hand in hand.  When Bitcoins source code was released, blockchain was intertwined within it. Making Bitcoin the first application to use blockchain. Bitcoin has always been synonymous with blockchain as blockchain has with Bitcoin.  However they are separate entities with Blockchain being used in multiple different ways and applications not just digital currency.

Bitcoin which you know from our previous paragraphs was first invented by Satoshi Nakamoto in 2008.  Bitcoin uses the Blockchain for Cryptocurrency transactions and verification. His vision was to make a borderless, decentralised, digital money system not reliant on trust.  The Blockchain was the perfect answer to this vision.

Think of the Blockchain as a ledger.  This ledger only has one ‘true’ copy. The ‘true’ copy is distributed within a peer to peer network which is transparent yet anonymous due to the fact you can see individual transactions, timestamps, public addresses (of the transaction) but you can not associate these with individual private addresses (transaction) keeping that anonymity.  

Once I explain further what the blockchain is I will come back and explain what I mean by ‘true’ copy of the Blockchain ledger.

First let’s look at how the Bitcoin Blockchain works.  The Bitcoin Blockchain uses Blockchain technology to keep track of all transactions that have ever occurred on the chain.  So if you were to download the Bitcoin ledger you would be downloading all past transactions on the blockchain. Then while running the software you would be helping to confirm or gain consensus of future transactions on the network.  This is otherwise known as ‘mining’ for which you may be rewarded in bitcoin (see Bitcoin Mining). Each ‘block’ has information on it. Firstly the block says I am ‘true’ due to confirming with the network that all my previous transactions are true and correct which means that 50% or more of the network has consensus about all previous transactions.  This is the first thing. Next it looks at the second half of the block and sees that a transaction has been forwarded for execution on the blockchain. It then makes sure both bitcoin addresses are true then makes the transaction.

This takes us back to what is the ‘true’ copy of the Blockchain ledger.  If hackers or the like download the Blockchain ledger and update it ready to make transactions, at this point in time their Blockchain is ‘true’ but then they make an illegal transaction, for example; they make a transaction then try to reverse that transaction.  The miners or other people/nodes on the network will reject the transaction due to non consensus. So although at times there may be other side-chains running where bad guys are confirming their own blocks and transactions, this will never be the ‘true’ Blockchain ledger as the majority of the network has not gained consensus on the blocks within those side-chains and therefore they will never be the longest chain meaning they are redundant and have no access to the Bitcoins transacting on the real (longest) chain of consensus.

For these hackers to gain consensus would mean they would have to have the majority of the hashrate or hashing power on the network.  This would mean having more total computing power than the sum of the longest ‘true’ copy of the blockchain ledger. In simple terms it means they would have to have more computing power than the whole network put together in order to gain 51% of the network.  Apart from being infeasible due to the sheer size of the network to own this much computing power given that the Bitcoin network uses more power in total than some small countries. It would also be more profitable to put this amount of computing power to work mining the actual ‘true’ network as you would get the majority of the Bitcoin rewards for new blocks found.

Ok, enough about the Bitcoin Blockchain.  Let’s take a look at the blockchain technology itself.  When first introduced the blockchain was used purely for currency transactions.  It took some time and some tweaking of the original source code to see that this technology had other real world applications and here is some examples.

One example which is the opposite thinking to Bitcoins anonymity is transparency of identity within the blockchain.  For example with KYC (Know your customer), AML (Anti-money laundering) and CTF (Counter Terrorism Financing) laws. Some blockchains which suit business in the current state need to know exactly who they are dealing with.  This type of blockchain could be used by governments where for example auditing is involved.  For example, it could record all tax payments to a particular person or business with true precision and trust while utilizing a searchable non editable ledger.

Another example might be a Blockchain such as Ethereum (See Ethereum) which uses ‘Smart Contracts’ to act almost like a lawyer.  You could do transactions of legally bound assets without the need for money or lawyers and paperwork. Simply enter into the smart contract the details of the transaction.  For example user A wants 10% of user B’s company. User B has agreed that for that 10% equity he wants User A’s farming tractor. The digital blockchain transaction is agreed upon by both parties then is written as a transaction onto the blockchain which then becomes legally bound.

A Blockchain can also work for business instead of ‘mining’ to create consensus or confirming transactions on the blockchain.  The business delegates a person to accept these transactions on the blockchains behalf manually. This means that there is a single point of control over transactions within a business but the business still has a transparent non editable record of every transaction and from whom.

Blockchains can be used to create massive databases of time stamped information too.  For example a Blockchain of medical records or a Blockchain of crop feed times and amounts.  All which are transparent and searchable.

There are innumerable applications for Blockchain technology many of which are still only getting discovered or are still in their infancy.