What is blockchain technology and how does it work
April 14, 2021
What is blockchain? This blog post will explain what blockchain technology is, what is it used for and how it works.
Blockchain is a Distributed Ledger Technology (DLT) with a specific set of features. A distributed ledger, sometimes called a shared ledger, is a consensus of replicated, shared and synchronised digital data, geographically spread across multiple sites, countries or organisations. The ledger in this case is typically in the form of a database as it refers to a set of related data and the way it is organised. Blockchain differs in the way it stores and manages information. A database structures its data into tables whereas blockchain, structures its data into clusters (blocks) that are then chained together. The blocks are sealed and linked together by a type of cryptographic signature, like a digital wax seal, called a ‘hash’. As one block is closed, the next data block opens with that same ‘hash’. The blockchain records the data (transactions) in blocks across several computers so that the record cannot be altered retroactively without breaking the cryptographic signing of each block. Once the block is filled with data and signed, it is chained onto the previous block in chronological order. As each block in the chain is given an exact timestamp when it is added to the chain, the system inherently makes an irreversible timeline of data when implemented in a decentralised structure.
How is blockchain used?
Many people have heard of Bitcoin and blockchain is the underlying technology that powers all cryptocurrencies. As we know, the blocks on Bitcoin’s blockchain store data about monetary transactions however, blockchain is actually a very reliable way of storing data about many other types of transactions, too. Several large enterprise companies have already incorporated blockchain technology including Walmart, Pfizer, AIG, Siemens and Unilever. Some companies have created blockchain consortiums like TradeLens involving Maersk and IBM to make shipping and logistics easier.
In areas like the food industry, which has seen many outbreaks of e Coli, salmonella and listeria, blockchain is being used to trace the provenance of food supplies. Historically, it has taken many weeks to locate the true source and cause of these outbreaks but blockchain can quickly and easily provide the geographical and chronological journey that the food products have taken.
In healthcare, providers can use a blockchain database to securely store their patients’ medical records. When a record is created, it can be written into the blockchain, which offers patients the proof and confidence that the record cannot be easily changed. These personal health records could be encoded and stored on the blockchain using a private key, making them only accessible by certain individuals to ensure patient privacy.
In other areas of our increasingly data centric lives, blockchain could be used to facilitate a robust voting system. Voting on a blockchain platform has the potential to eliminate election fraud and improve the voter turnout. The blockchain protocol would also maintain transparency in the electoral process, reduce the personnel needed to conduct an election and provide nearly instant results.
Perhaps one of the most interesting aspect of blockchain technology is the use of Smart Contracts. A smart contract is computing code built onto the blockchain platform to facilitate, verify, or negotiate a contract agreement. Smart contracts operate under a set of conditions that users agree to. When those conditions are met, the terms of the agreement are automatically carried out. This has significant applications in areas from insurance to leasing and eliminates the fees, processes and time associated with third parties like lawyers.
How secure is blockchain?
Blockchain technology deals with issues of security and trust in several ways. First, new blocks are always stored linearly and chronologically and in effect, are always added to the “end” of the blockchain along with a time stamp. After a block has been added it is very difficult to go back and alter the contents of the block because each block contains its own cryptographic signature or hash, along with the hash of the block before it. Hash codes are created by a mathematical function that turns digital information into a string of numbers and letters. If that information is edited in any way, the hash code changes as well. This means that if a hacker wanted to steal or change any contents then their hash would alter, and their copy of the code would not align with the other distributed copies. The copy would immediately stand out and be eliminated.
On some blockchain protocols succeeding with such a hack requires simultaneously controlling and altering at least 51% of the copies of the blockchain so that their new copy becomes the majority copy and therefore, the agreed chain. This type of attack requires huge computing power, time and resources as all the blocks would now have different timestamps and hash codes. Clearly this would also be a thankless task as the other users would see the dramatic changes and take appropriate actions.
Next steps for Blockchain
Many of the early trials of blockchain are now becoming practical applications, not least due to the rise of cryptocurrencies. Primarily though, blockchains help create and build trust between parties, which means their use in business automation, administration, health, insurance, supply chain, the financial and energy sectors, voting systems and the legal field is all but inevitable.
Are you ready to get started with private blockchain technology for your business? Speak to an expert today to find out how we can integrate our blockchain technology to improve security, reliability and reduce costs.