A blockchain is a method of storing and distributing information. To visualize this concept, imagine a document sent to thousands of computers on a network. Then, imagine that this network regularly updates this document on all computers a few minutes apart. This is how blockchain technology works. It allows the distribution of digital data, making the same version visible to anyone on the network. And above all, it does not allow these data to be altered.
The term “blockchain” comes from the Bitcoin White Paper written by Satoshi Nakamoto. In this one, he uses the term “block chain” and will later use the term “blockchain” in a conversation with Hal Finney on November 9, 2008. Given the growing popularity of this expression within the organization, it is likely that the fusion of these words in English is at the origin of the term under which we currently know the concept of “blockchain”.
While the majority of cryptocurrency use blockchain technology, this is not the case for some of them. Some new cryptocurrency have no intention of using blockchain technology. We do not yet know how these currencies will behave and how they will work exactly, but they will probably be interesting to observe. For now, let’s come back to the reasons that led to the creation of the blockchain and its advantages. This part is a little more technical for those who want to go further.
Security: Blockchains are made up of a continuous sequential series of records, called blocks. These blocks record the data entered using hash features: this means that the data is always modified to keep the same length, which is a form of encryption that prevents the data from being easily hacked. These hash features are time-stamped, so it is not possible to modify or overwrite the data. It is almost impossible to successfully hack into the blockchain’s data. Indeed, the blockchain data is visible to everyone and does not depend on a single computer or server, since it is stored simultaneously on all computers (nodes) in the network. For this reason, the potential of blockchain applications is being studied to determine whether they can be used in other areas where security is of paramount importance, particularly in defence.
Transparency: The information in the blockchain is visible to everyone using a computer connected to the Internet.
Cost: Since transactions are peer-to-peer, authorized and updated within minutes, they are much less expensive than banking transactions. To give you an idea, on April 19, 2018, a transaction of 700,000 Litecoin (nearly $100 million) took place between two users. This transaction was completed in less than 2.5 minutes at a cost of 40 cents.
Availability: Since the system uses a large network of computers (nodes) instead of a central platform, it remains available in all circumstances. If a node is unavailable or leaves the network, there will always be enough left to complete the transaction. It is the very principle of decentralization: not to rely on a single entity.
Reliability: Databases have always been subject to corruption and data loss. They can become disorganized and contain errors. Sharing data was difficult because of the way databases work. With the blockchain, these problems do not occur due to the simultaneous presence of the entire database (public general ledger) on a large number of nodes. There is no downtime and the system automatically updates itself a few minutes apart by adding new data blocks to the blockchain.
Speed: Verification of banking transactions, especially cross-border transactions, can take several days. With the blockchain, transactions are verified and uploaded to the public ledger in a matter of minutes, which is why banks and financial institutions, as well as other companies and organizations, are currently showing great interest.
How does a blockchain work?
- When a transaction is carried out between two parties, the data of this transaction, including their public and private keys, the amount of the transaction and other data are entered into the global network of nodes of this cryptocurrency.
- Miners” (people equipped with computers running specialized mining software) work continuously on the network. They verify that the transaction is authentic by confirming that the keys are correct, that the seller actually has the currency to sell and that the buyer has the authorization to buy it.
- Once the transaction is verified, it becomes part of a block, a set of other transactions that occurred during the automatic general ledger update.
- A minor then authenticates the block, which becomes part of the blockchain within the public ledger.
The “mining nodes” voluntarily join the network, they are rewarded for doing so, but we will see this aspect in more detail in the next chapter, which deals with mining. Since no one is responsible for the public ledger, it is a completely decentralized network.
Each data block added to the public general ledger contains data that links it to the previous block. That is why it is very difficult to corrupt it. If a hacker tried to access and modify the data in a block, he could not do so without stopping and modifying the entire system.
Blockchain technology is still very new. It is not yet possible to see all the applications in which it will be used. However, this is a technology that will change the way databases are executed and managed.
Fortunately, this method will be much better than the ones currently in use. It will allow much better digital authentication methods. In addition, it will influence smart contracts, file storage, identity management, intellectual property protection, money laundering prevention, data management and much more.
In recent years, many companies have filed patents related to blockchain (Amazon, WallMart, etc.), it is easy to imagine that these giants will use the blockchain in their business.