Blockchain. It’s a word that gets thrown around a lot when discussing bitcoin and cryptocurrency, but it’s not necessarily one that is well understood.
When the mysterious Satoshi Nakamoto first outlined those concepts in bitcoin’s 2008 white paper, he created a technology that could revolutionize money, data storage, trust and transactions forever. As the hype around bitcoin dies down — slipping from its mid-December highs of nearly $20,000 to a current price of $11,231 — it could be blockchain that outlives the cryptocurrency.
Proponents of blockchain tout its “trustless” structure, which has huge potential for other applications. It has the benefits of decentralization, where you’re not held ransom to a single party, while also removing the need to trust random miners, because the rest of the network has to agree on the updates. Rob Gowers and Jukka Aminoff, academics from Anglia Ruskin University, explained it in an essay published on The Conversation as such:
The beauty of blockchain is that something can be unique and stored digitally with ease, without needing an equivalent in the real world. For example, things like contracts, wills, deeds and share certificates might only require a piece of code stored on the blockchain that represents the exchange. Instead of a trusted intermediary verifying transactions, the computers of the shared network of bitcoin users themselves perform the verification at no cost to those involved in the transaction.
It’s best to think of the blockchain as a distributed ledger, a kind of shared, incorruptible digital record book that keeps track of every transaction. All activity conducted with bitcoin is held in this public record, available for everyone to see. It’s held on computers all over the world, meaning there’s no central server to hack or attack.
When a new transaction is made, it’s written into a block, which is linked to the most recent block and updates the ledger. This means there’s a network-wide consensus about which transactions took place when, and attacking one host would fail to make a change to the network that gets distributed across the board. It also means that once a block is added to the chain, it can never be changed.
In the case of bitcoin, “miners” set computers to work powering this network by verifying transactions on the network, bundling them up, linking it up to the previous block using advanced cryptography, and then trying to solve what’s called the proof-of-work problem. This is to show the amount of work done to find a hash that’s acceptable, and it’s meant to be difficult as a way of showing that the miner used a good amount of processing power.
Their reward for the hard work comes in the form of bitcoins, giving them an incentive to power the blockchain. It’s not the only way to run a blockchain, and it’s been criticized as energy-wasteful, but it helps explain how a blockchain works in practice, and it points to how there are applications far beyond what bitcoin has become.
Blockchain could revolutionize a number of seemingly familiar ideas. Everipedia, which counts Wikipedia co-founder Larry Sanger among its supporters, aims to put an encyclopedia on the blockchain, creating a decentralized repository impervious to blokcing.
Siglo enables phone users in developing markets to receive free data allowance exchanged on the blockchain by displaying ads on the phone. ParagonCoin uses the blockchain to store information about cannabis distributors, enabling applications like supply chain tracking to store lab and harvest data.
It’s not just individuals and businesses exploring the potential. Estonia’s e-Residency initiative, which has already signed up over 27,000 people from 143 countries in a virtual form of citizenship since its 2014 launch, also has big plans for blockchain. The system enables members to set up businesses, raise capital and more in a secure government-backed program. Kaspar Korjus, director of the initiative, outlined three possible crypto tokens in December that could benefit e-Residency. One of these, the “identity estcoin,” uses the blockchain to securely verify a user’s identity in online transactions.
Although it could well turn out that Bitcoin’s best days are in the past, blockchain’s time could still yet come.