It’s been hard to miss the excited talk about Blockchain technology in tech news over the past year or so – with exceptional new minds and applications coming to the fore.
But there’s no getting around it, Blockchain is a complex subject and only very few truly understand the depth of it’s workings and applications. With that in mind, we’ve taken 8 of the most popular questions about Blockchain and distilled the answers down into understandable bitesize chunks…
What is blockchain?
A blockchain is essentially a decentralised currency ledger.
To understand how blockchain works, it’s important to get a quick understanding of how traditional currency ledgers work:
Currently, a bank or government controls a ledger – a central record of transactions with the chosen currency. When a change is made, it’s this central ledger that’s updated – and you trust the bank or government to do that accurately.
Now, instead of being held centrally, imagine if that ledger was spread over a huge network of computers, owned and administered by people right around the world. Every copy of that ledger has to correspond with all the others – and transactions from every corner of the globe are recorded and verified with every other copy of the ledger. There is no trust needed in this type of system – as it’s constantly checked against the copies for accuracy. This is effectively what a blockchain is.
Who created blockchain and Bitcoin?
Although blockchain is the foundation technology that underpins Bitcoin, it was actually Bitcoin that came first – on the 3rd January 2009.
It’s still something of a mystery who created Bitcoin – with speculation that the moniker ‘Satoshi Nakamoto’ is actually a group of innovative minds that imagined the concept then brought it to the world.
Bitcoin was a really just a currency experiment when it began, released as open-source software in 2009 – and designed to remove the ‘middleman’ needed to administer physical currency transactions.
Who controls a blockchain?
Quite simply – no one.
No one person can control blockchain technology. When blockchain tech was created, the original protocols and ways of operating were set in stone – and cannot be manipulated, because of the way a blockchain develops.
Everyone has access to the entire ledger – at all times. The infrastructure that underpins the technology is scattered around the world – and cannot be reigned in by any organisation who would seek to control it.
How does the blockchain generate Bitcoins?
You might have heard the term ‘Bitcoin mining’ – this is the quick reference term used for the process needed to generate more Bitcoins. Rather than offering any resemblance to mining – a more accurate term would be ‘problem solving’.
The computers around that world that hold copies of the Bitcoin blockchain also solve the mathematical problems that are required to expand the blockchain and create new coins. When they do this, they’re rewarded with Bitcoins. This effectively creates an incentive for people to verify and build the blockchain.
The maths problems underpinning the blockchain started out comparatively simple when compared to the ‘mining’ required today. As the blockchain grows, so does the complexity of the verification needed to create more Bitcoins. As such, incredibly high-powered computers are now required to solve these problems.
The power and hardware needed to mine Bitcoins is now out of reach for most individuals – so instead, groups of miners pool their resources and tackle problems collectively. When problems are solved – the individuals are rewarded for the amount of effort they and their systems have put in.
Can blockchain technology be trusted?
The short answer would be yes – and that’s because no one has any more power than anyone else using the blockchain.
And, as we’ve already covered, no one has any power whatsoever. So, in a system with no power, no power or influence can be leveraged to make changes. What’s more, a blockchain creates the rules through which you interact. In short, there is no trust needed – with the ledger spread across hundreds of thousands of computers (all verifying the current position) – trust takes a back seat to a ‘consensus’ based system.
Does it make currency anonymous?
No matter how many scare stories you hear in the media, the Bitcoin blockchain is not anonymous. In fact, transactions are ‘owned’ and attributable probably more so than virtually any other currency in the world.
There’s an idea of anonymity because it’s not easy to work out who’s sent your Bitcoin – whereas your bank or PayPal system sees a very definite name and account number that the transaction has come from. The best cryptocurrency exchanges are quick to point out that blockchain tech actually eliminates the chance of financial fraud – so in some ways is a much less appealing option for criminals than current infrastructure.
With Bitcoin, the companies who store it do know who you are – and as with any company, their records can be accessed by law enforcement. Hence, the large criminal networks that have operated with Bitcoin at their core are generally no more – or can be brought down fairly quickly when transactions are scrutinised.
What are the other applications for the technology?
While blockchain is currently associated with financial areas – that’s not to say this is the full extent of what’s possible.
Where a record is required to be kept – it could potentially be done with a blockchain. There’s a record kept votes cast, contracts signed, healthcare administered, property owned, rights of movement across borders, marriages – and so much more.
Blockchain would decentralise all of these records and instead, seek a consensus from every ledger copy that the information being created is consistent with information that’s gone before.
Can blockchain by compromised or hacked?
Well, here’s the thing. You could put a tremendous amount of effort into changing the ledger so you benefit from the transactions, rather than the intended recipient.
This requires a few things though.
Firstly, you’d have to do the complex calculations that are required to chain all of the previous blocks of calculations together. When you’ve recalculated these blocks, you’d then have to convince the rest of the blockchain that your transactions were valid (even though every other copy says otherwise)
The word you’re looking for now is ‘impossible’ – there are so many checks in place to ensure this doesn’t happen – that it’s just not feasible to ‘hack’ the network.