Understanding Blockchain For Dummies

The title of this post is unfair. You should be forgiven for not fully understanding a process you haven’t heard much about in your life. Blockchain is, after all, a futuristic word, like disruptive start-ups or wantrepreneurs. That impression is, however, incorrect.

Just like there is no such thing as an overnight success in business, Blockchain technology has been around since the 90s at least. The event which rose it to fame was a currency that ran on it, Bitcoin. A lot can be said about this digital currency, but the purpose of this post is to introduce you to Blockchain.

Let’s start with some common phraseology

It is inevitable to briefly discuss some of the most common words and phrases used in this technology. At its core, this technology is made up of many Hashes. A Hash is an alphanumeric code that represents text which humans understand. Every word, digit, and phrase creates a unique Hash, however, the same word always generates the same Hash.

As an example, let us say that we convert the phrase, “Valletta is the capital of Malta” into hash. Using MD5 the hash would be 8714ee1087db15eec87862c531509c8c. Hashes can hold any information data. Contracts, instructions, points, and any data can be turned into a hash. They are the backbone of Blockchain technology.

In order to give validity to hashes, they are stored in blocks. A block is nothing more than a collection of one or more related hashes with a unique address. Once created, the block cannot be changed. In a case where the block needs to be updated, a new block is created with the new information and it links back to the previous block it was based on.

Consider this as an example. Your grandparents bought a house and the sale documents were all turned into hashes and stored in blocks. After your grandparents passed away they left the house to your dad. A new block is therefore created showing that the house which was owned by your grandparents is now the property of your dad. If your dad were to sell the property to Mr. Smith, a new block would reflect that. No matter how many times this house is sold you can always easily work back the blocks to see the original owner of the house.

This series of blocks give this technology its name, Blockchain.

The Indiana Jones of ledgers

Just like archaeologists were not considered cool before (and after) Indiana Jones, keeping ledgers was not something tech-savvy people enjoyed discussing at length. However, with blockchain, all this changed. Through a reliable, almost tamper-proof ledger system, a technology that can instill trust in its users was created.

In order to add any piece of information, new or updated, to the blockchain, you need to use miners. Miners are a combination of computer hardware and software. These add and verify the information to the public blockchain. Anyone can become a miner by purchasing a suitable mining hardware and software.

Through system algorithms, the miners check each other’s work constantly to ensure there is no tampering with data. Since the miners are not controlled by any single entity, government, or country, any information which is tampered with will be automatically discarded.

Using our earlier house example, imagine a miner attempts to corrupt the system by reprogramming it to claim that the house is his. Since the system is constantly checking that all miner’s ledgers agree, it will notice this irregularity from this particular miner. It will automatically replace the incorrect information inputted with how it was before.

The cost of blockchain

Miners can be considered as being self-employed entrepreneurs and to do their work they require payment. Without going into the merits of cryptocurrencies as they will be discussed in a later post, you should know that miners get paid a certain fee for their work. They normally get paid in Bitcoin or Ethereum.

Blockchain technology offers many opportunities for new businesses. In this respect, Malta is currently at the forefront of this futuristic technology. The lack of ownership, control, and jurisdiction of blockchain means that any entrepreneur can find a niche to create a business. Just like in 2000 the Internet became what we know it to be today, I am sure that by 2020 blockchain will revolutionise the way we do things.