What blockchains are and why we need them
Anyone who is familiar with Bitcoin or any other cryptocurrencies is familiar with the term “blockchain”. It is the system that assures that your bitcoin is secure from hackers, and is essential to the entire cryptocurrency market.
But, it is more than just a method for securing cryptocurrency. Blockchains are being used (or can potentially be used) in almost any industry. They make transactions faster, more transparent, and independent from any one or group of institutions. It is the future of commerce, which is why we are posting this article.
This is an introduction…a 64,000 foot view…to what blockchain is and how it does what it does. I am going to approach it from the standpoint of a user…to give you a basic understanding of the concepts without going into software, algorithms, or complex mathematical equations.
The use of blockchains grew as a result of the financial collapse of 2008. In 2009, in an effort to create a more reliable financial system, Satoshi Nakamoto introduced the idea of cryptocurrency. But, there had to be a way to assure that hackers could not destroy the system by stealing all of the coin. Enter blockchains, which had actually been around for almost 10 years, but hadn’t really been introduced on a large scale.
To explain the theory behind blockchains I will use the financial industry.
The “old style” banking system consists of financial institutions, like banks. They are centralized holding places where people deposit their money. But, as we saw in 2008-2010, the system can be brought down by the actions of relatively few people. Blockchain uses a distributed system, rather than a centralized one, so no one person, or group of people, has the power to scam the system for their own benefit.
The current banking system is also very slow. My sister recently deposited a check in her Florida bank which was drawn on her Connecticut bank and it was 5 business days before the funds were available. With a blockchain system, she would already have all the funds in one wallet. As well, if one person wanted to transfer funds to her the transaction would take minutes rather than days.
A blockchain is a virtual ledger, where a sequence of transactions is recorded. There is not just one ledger, though. Every computer in the system has a copy of the ledger. So, when a new transaction is completed, all computers will verify the transaction and the ledgers will be updated, so they are always in agreement. All the computers are interconnected, forming what is known as a distributed network. This is in contrast to a centralized network where, for example, a bank keeps all the information internally.
How blockchains work
The details of each transaction resides in a block. The block has a unique ID number which is generated when the block is created and will change if there is a change in the information in the block. Each block also has the ID number of the previous block. This forms a chain of blocks, with each referring to the previous one. Thus, the term “blockchain”.
This is where the security of the chain comes in. If someone were to try to go back and change the information in a block, for example, to steal money from someone else’s account, the change in the information would cause the block to create a new ID. This tampering would immediately become apparent because the second block now refers to a preceding block which no longer exists. The chain would be broken and that ledger would be nullified by the other computers in the network and be replaced by a correct one, which doesn’t include the fraudulent transaction.
Therefore, in order to tamper with the system, someone would have to immediately update all subsequent blocks and also get that ledger accepted by all the computers in the system. Much more difficult than merely hacking into a bank’s computer system…
Examples of blockchains in action
Blockchains can be useful in any industry where transactions are completed…in other words, almost all! Here are a few examples:
Real Estate:
The process of buying a house is quite cumbersome. Real Estate agents, lawyers, title companies, appraisers, inspectors, etc. are all doing work and submitting their reports to the buyer, seller, or buyer or seller’s attorney. With a blockchain system, all parties would be plugged into the system, all reports would be submitted one time and everyone would get the information they need quickly.
Also, the title system in our country is very outdated. In most areas, you have to visit the courthouse and manually trace a title back. If someone wanted to alter a title it would be relatively easy. For example, if the property had code violations, someone could wipe out all evidence of those violations by getting the paperwork “lost”. If the violations were recorded in a blockchain it would be impossible to remove the block containing information about the violations, which would make the chain of title both easy to access and more reliable than it is under the system we have today.
In fact, the country of Dubai is currently putting all their property records on a blockchain, and plan to be finished by 2020.
Insurance:
Similar to real estate, insurance is dependent on a paper trail. If this trail were put on a blockchain, insurance fraud would significantly decrease. All facts about the property and the identity of the owners would be verified and available to all parties.
Voting:
The identities of voters would be verified without the need for identification, and dead voters would no longer be allowed at the polls. Counting would be done with transparency and reliability because all interested parties could see what was going on.
Health Care:
Records will be verified and available immediately to all interested parties. This would mean that doctors would have the information they need immediately and could give more informed care to their patients. The information would be secure, as well, because only those that need the information would get it. It would be impossible for others to hack into the system.
Music/Charitable giving/crowdfunding/retail/etc, etc, etc:
The uses of blockchains are almost limitless.
Here are a few companies that are currently using blockchain technology:
openbazaar – marketplace for goods (bye, bye Amazon?)
Lazooz – connecting riders with drivers (alternative to Lyft and Uber)
ujo: connecting musicians with their fans
onename: allows you to create one identity which you can use to log in to websites
Atlant (atlant.io): Will buy commercial property, divide it into square millimeters (tokens) and sell them off to individual investors.
Ubitquity: They are currently putting all title records on a blockchain.
As I said, this is an intro to the concept of blockchains. Hopefully it has opened your eyes and sparked some ideas about how blockchains can be used in your business. This is something that everyone has to understand, because it represents the future of commerce worldwide.
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