Blockchain is not a new technology that is happening on 2018, but you probably heard this term because of Bitcoin. Blockchain was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents, but it went by mostly unused until it was adapted by Satoshi Nakamoto in 2009 to create the digital currency, Bitcoin. Bitcoin is different from credit cards, Paypal, or other ways to send money because no banks or financial middlemen are involved. Then how does it work? Bitcoin uses the Blockchain by tracking records of ownership over the digital cash so only one person can be the owner at a time and it can’t be spent twice.
However, bitcoin is just the beginning for Blockchains.
We sometimes need a system where records could be stored, facts can be verified by anyone, and security is guaranteed because some (bad) people want to cheat and change the result by editing records. This is why we use the Blockchain.
Blockchain is a chain of blocks that contain information, also known as a distributed ledger, that is completely open to anyone but cannot be altered.
“The Blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” – Don & Alex Tapscott, authors of Blockchain Revolution (2016)
Let’s see how Blockchain works. There are three important elements; Block, Hash, and Hash of the previous block. The people who run the system use their computer to hold bundles of records submitted by others, known as “Blocks”, which uses a form of math called cryptography to ensure that records can’t be counterfeited or changed by anyone else.
Hash is something special. You can compare it with fingerprint because it’s always unique and cannot be overlapped. Hash identifies a block and all of its contents. Once a block is created, it’s hash is also being created. Changing something inside the block will also change the hash. In other words, Hashes are useful when you want to detect changes to blocks.
The last element is called Hash of the previous block. All chronologically ordered blocks have hashes and all hashes are linked. If one of the blocks is changed, all following blocks become invalid because they no longer store a valid hash of the previous block. To mitigate this, Blockchain has something called Proof of work.
Let’s take this technology into real-life industry. For example, a toy company. You can keep a record of high-resolution photos and track real-time records of every payment transaction. Also, the company can hold certificates of authenticity or maintain product details and serial numbers.
Blockchain can be also used to store medical records, creating a digital notary or even collecting taxes. In near future, this technology will be more actively used for companies developing safer IoT products. Innovation has only just started.