Blockchain is one of the buzzwords in tech right now, except no one knows what it is. So why is everyone talking about it and what is it exactly? What impact will it have on your life? An expert gives us the 101.
How new is blockchain?
Blockchain is finally making a name for itself at the age of 28, in no small part because of bitcoin and cryptocurrencies. As a buzzword on the tongue of investors everywhere, blockchain stands to make business and government operations more accurate, efficient, and secure.
And blockchain is…
“Blockchain is a trustworthy transaction ledger that’s stored in a public distributed network. Blockchain technology was first outlined in 1991 by two researchers, Stuart Haber and W. Scott Stornetta…
Snorz. Please explain it as if we were 12-year-olds.
“Simply put, blockchain is the framework for a new type of Internet. On this new platform, you can create giant ledgers of information (like a massive Excel spreadsheet) that are decentralised and visible to everyone. In those ledgers, one can record information – for example, your latest purchase from a fashion blog shop, music albums, a bunch of utility tokens you have been awarded (you have to go through a blockchain company). These ledgers are protected, which is called ‘immutable’, because no one can change the blocks once created, and they are supported on computers all over the world.”
All over the world?
“Yes. There’s a sitcom called Silicon Valley, which was even referenced by Bill Gates, about a small team of developers at an Internet start-up called Pied Piper. In one particular episode, their founder proclaims that he would like to build a ‘new Internet’ utilising the unused processing power of our everyday electronic objects – our phones, digital watches and microwaves.
“At a later point, the start-up needs server space, and their tech team has a stroke of genius that leads him to ‘cut up their data’ and store it in multiple refrigerators. Of course, the show is a parody so it exaggerates things, but like all great parodies it captures a lot of truths.”
Okay. So, a new platform to record stuff – support by computers all over the world – and there’s no governing body?
“That’s right, it’s decentralised.”
But who owns these computers all over the world?
“Blockchain developers we call miners.”
What’s in it for them?
“Sometimes nothing. Sometimes digital tokens.”
Whoa. I think I get it. Okay, it’s new tech, super cool, incorruptible, immutable and an incredible way to record data. But … who is using it?
“Right now, the most recognised use for blockchain is using that store of information to create a value that is represented by digital currencies such as bitcoin.
“Most major companies in the world (as well as plenty of start-ups) are thinking about different ways of using this new framework. The first movers in this area are in the financial industry. For instance, J.P. Morgan has announced that it is looking at blockchain to track and store money or assets.
“The Australian Securities Exchange has announced that it is looking at ways of using it to track and record stock ownership. Insurance companies are also looking at blockchain to create policies.
But if I want music I still go to Spotify? If I want a book I go to Ama… I mean, Kinokuniya, yes?
“Good point. For now, yes. But what blockchain has the potential to do is to challenge businesses that are largely intermediaries, like Amazon, Uber or Spotify. Perhaps no one more than banks falls under this category, but companies like those you just pointed out do function as the middleperson.”
So if we all get on this blockchain party, there’d be no more intermediaries?
“The big benefits of blockchain are that it is trustworthy and free. Information or value can now be recorded, stored and transferred without the need for a middle person. Users will save on transaction costs and, over time, it will become more efficient than the way we do things now.
“Going back to the example of the music industry: Blockchain may allow people to purchase music directly from the musicians and therefore cut out the need for Spotify or Apple. You would just transfer value to the musician’s spot on the blockchain, and this act would cause the ledger to automatically release the musician’s recording to you.”
How can I help to contribute to this new future?
“Keep asking questions and updating yourself, like what you’re doing now! The blockchain community is very open and understands that blockchain may be a bit confusing. If you find yourself talking to a blockchain expert, use it as an opportunity to learn something new. Any expert loves speaking to someone who is intellectually curious. If you wish to take it to the next level, learn to code, and be a developer!”
Okay, mind officially blown. What happens tomorrow?
“As with any new technical development, it takes time for the paradigm to shift. For a while, we will continue to do things the same way we always have, and it may even seem as if blockchain is just a lot of noise. But changes will come bit by bit. Then one day, without warning, you will notice that the world has changed! The framework for transactions will be completely different from what they are today. At that point, lead, follow, or get out of the way!”
So… what is the “block” and what is the “chain”? (Memorise this for your next party trick.)
The “block” refers to digital pieces of information. Imagine you’ve just bought something from an online merchant:
1. Blocks store information about transactions, say, the date, time, and dollar amount of your purchase.
2. Blocks store information about who is participating (you and the merchant), but instead of using your actual name, your purchase is recorded without any identifying information, using a unique digital signature (for example, Wonderwoman88).
3. Each block stores a unique code called a “hash” that allows us to tell it apart from every other block. (A single block on the blockchain can actually store a few thousand transactions.)
And the “chain”? “Chain” in this context refers to the public database. In order for a block to join the blockchain, the following must happen:
1. The transaction must be verified. Instead of a person or third party, with blockchain, this job is left up to a network of thousands computers (or in the case of bitcoin, about five million computers) spread across the globe. The network rushes to check that your transaction really did happen – that is, it confirms the details: time, amount, and participants.
2. The transaction must be stored in a block. After your transaction has been verified as accurate, it gets the green light, and is stored. There, it will join hundreds or thousands of others like it.
3. The block must be given a hash – a unique identifying code. The block is also given the hash of the most recent block added to the blockchain. Once hashed, the block can be added to the blockchain.
When that new block is added to the blockchain, it becomes publicly available for anyone to view – yes, even you, Wonderwoman88.
(Source: www.investopedia. com/terms/b/blockchain.asp)
Okay class, so simply put, blockchain is about record-keeping on the Internet … and a bit(coin) more. There, lesson over.
*This article was written in consultation with Rebecca Weinrauch, chief operating officer of Grasshopper Asia, a technology-driven trading firm. (The company also has a digital asset and cryptocurrency trading division called Tilde.) Most of Rebecca’s time is spent thinking about how technology and innovation impact traditional business, market structure, and current regulation. To her, nothing is more fun than having an opportunity to do this within the context of this new digital asset class.