Social networks are one of the most common ways we communicate in the 21st century. We use them for entertainment, social interaction and even business. But…
I had always planned my next blog to be an exploration into blockchain and its significance in the modern world, along with an explanation to the casual reader (if you are out there) as to why I struggle with the balance of excitement and trepidation as this technology unfolds.
These are still my intentions, but it would be remiss of me not to recap on what has happened since December, where I sat in my home office, excited for the Christmas that had been promised, blogging about Bitcoin hitting a recent peak. What little I knew then. It’s fair to say that my excitement for unwrapping Christmas presents was also met with a newfound obsession with checking Bitcoin price, as I watched that previous peak become a price of the past, as value increased almost on a daily basis. At the time of writing, Bitcoin exceeded the £30,000 mark in early January and is now floating, dare I say somewhat consistently (as far as Bitcoin can) around the £27,500 mark. Not bad for an asset worth £5,000 last April.
So, let’s start at the start…
What is blockchain?
Let’s imagine I’ve handed you a Rubik’s cube and asked you to solve it. If you are like me, you might rotate the edges of the cube at random, fooling yourself into thinking “you got this”, until it becomes increasingly apparent you are making the situation worse and have no other choice but to systematically rearrange all the stickers when no-ones looking to feign your genius.
Alternatively, you might know your algorithms and solve the problem in under 10 seconds, much like the speed-cubers in Netflix’s documentary (great one-off, highly recommend).
Now imagine that the Rubik’s cube is in fact a digital cube containing a megabyte of information. A computer is tasked with solving the cube and once complete, all the information contained within the cube is stored, secured, sealed and verified. Then a new, harder to solve Rubik’s cube is placed on top, and linked to the original one, which requires more processing power in order to solve it before that information can be securely stored, and so on and so forth.
If we consider the bitcoin network, all transactions of bitcoin are verified, cleared and stored in a block that is linked to a preceding block, thereby creating a chain. The structure permanently time stamps and stores exchanges of bitcoin, preventing anyone from altering the ledger. If you wanted to steal a bitcoin from the ledger, you would have to hack the entire ledger which to date has not been achieved since bitcoins inception due to the magnitude of processing power required to hack the entire ledger.
What blockchain achieves is a digital historical account of information and/or value, stored on an ever-increasing digital chain, segmented into ‘blocks’ of information permanently stored in order to provide security or ‘trust’ in the data recorded.
“OK, I think I’m with you, but why does this benefit us?”
Well, in a number of ways.
- Distributed Network – the key concept of blockchain is that it is decentralised. This means that no-one individual, institution, or government has power over the underlying data. For example, the NHS may hold a database of patients and medical histories on a server accessible only by NHS staff. They have control over that information and are responsible for it, and in this respect that data is centralised. Blockchain, like the one that uses bitcoin, is distributed; it runs on computers provided by volunteers around the world, so is not stored in a single location. Unlike the NHS, there is no central database to hack.
- Trust – as blockchain is encrypted, you could liken it to a tower of safes, each needing a more complex key to lock. Once locked, what is stored within the safe is permanent. However, there is another deeper trust mechanism at play here. The internet has caused a huge increase in the amount of stored data. Most of this is data held about us that we do not own or control. As a result of this, we rely on third parties to handle such information. Banks for our wealth, solicitors for transactions, and cyber-security to prevent others from accessing data they are not entitled to. We need these third parties in order to verify data from other places. Now that this information can be stored on a secure digital chain, the requirement for third parties to act as the ‘trust’ mechanism in a transaction is no longer required, information can be verified digitally and automatically.
Consider a house purchase. Currently the buyer would need to engage with a solicitor, for them to correspond with the vendor’s solicitor, simply to verify the property is suitable to be purchased, based on the information provided by the vendors, to their solicitors. Anyone who has undertaken this process will know that even the simplest of property transactions comes with a financial and time cost. Now imagine all a property’s history and details are held on blockchain. A smart contract is deployed that will instantly transfer funds to the vendor providing certain criteria on the house in question are met. It seeks and verifies this information from data stored on the blockchain. You’ve just bought a house in minutes, rather than months.
- Public – Blockchains, like the bitcoin network, are public. Anyone can view it at any time, because it is on the network, not within a single institution charged with maintaining it and keeping records for audit purposes. Consider a tax system on blockchain, where you would be able to track your contributions to the government and see pound for pound where the government are spending your, and other taxpayers’, money. No more expense scandals. Full culpability. Powerful stuff.
There is a sense we are standing at a moment of great technological change, where the internet of things is transitioning to an internet of value. The recent disruptors of industry (Uber, Air BnB) could be disrupted themselves and replaced by blockchain. Bitcoin could become the digital storage of value it is prophesised to become. What evolves from this space over the next decade is anybody’s guess, but my advice would be to buckle up. Things are about to get interesting…
Read Ben’s previous blog on ‘Bitcoin – a phoenix from the ashes or a flash in the pan’ here.