The world could be looking at the killer technology of the future. Central banks and governments are viewing this developing technology with growing concern because it has the potential to decentralize the very nature of transactions, taking control away from these traditional controlling entities and providing for secure and private trading.
Imagine being your own personal, private central bank. The Central Bank of Me in a digital ecosystem where accountability is a core, defining feature. Where no errors can happen or transactions somehow lost. Every single transaction is both validated and secure. Blockchain technology is very capable of doing just that, potentially redefining the very nature of conducting business. The banking powers that be know that this emerging medium of exchange is a definite worldwide game changer.
Like paper fiat currencies, cryptocurrencies have no intrinsic value. Cryptocurrencies have no physical form, purely digital and only exist in the internet. The system of nodes is completely decentralized, but distributed for redundancy across thousands of networked computers. Unlike fiat currencies printed at will by central banks, the supply of cryptocurrencies is not determined that way.
So what exactly is blockchain? Many have heard the term, but have no idea what it's all about. Well very simply put, it's a digital ledger where crytocurrency transactions are securely stored, recorded, and chronologically logged. In other words, the very engine that makes all cryptocurrencies go is based upon blockchain technology.
Nodes, servers really, keep track of each 'block', and every server is aware of the data stored when the block is created. This distributed system guarantees that transactions are indeed valid. It's like having a spreadsheet duplicated and stored across a network of secure servers which, by design, regularly updates, and reconciles them all.
This then begs the question. What is a block? Any given block is composed of four core processes. First, an identifier known as a 'hash' or consensus identifier. It's a randomized set of encrypted numbers. The second component is the hash or consensus ID from the previous block to establish the proper sequence or chronology. Third is the transaction. Last is the public key for the sender and receiver to identify the information transfer.
What makes blockchain secure is that its network is set up so that ledgers accept inputs from many servers and only when there's consensus among the various servers providing these inputs can any ledger entry be modified. No centralized authority, like a bank, is needed to approve any given transaction which allows for transactions to occur between unknown parties.
The software is encrypted in such a way that conflicting or duplicate transactions can't be performed and allows for automatic transactions. The blockchain database is essentially carved in stone, so once a sequence has been established, it cannot be revised or otherwise tampered with.
Going back to the beginning, blockchain was spawned by Satoshi Nakamoto. Satoshi Nakamoto could be a person or group of people working under an assumed identity. One thing is for certain, he or they have created something, a secure underlying technology, that is evolving into something much more significant, with much greater impact on digital information, contracts, trade, and the very nature of the internet itself.
Here's a step by step walkthrough of a typical transaction:
- A transaction is requested.
- A network of peer-to-peer servers or nodes broadcast the requested transaction.
- Using a series of algorithms, the nodes validate both the user's status and the transaction itself.
- This verified transaction can be crytocurrency, records, or even contracts. The type of digital information that can be transacted and verified in this manner is virtually unlimited.
- The transaction is complete. The new block is added to the ledger, connected to the existing blockchain in a permanent way that cannot be modified.
Since the blockchain information exists as shared, continuously updated and reconciled data, the records of this distributed database are public and easily verifiable. Everyone always has the same version of each record.
In simultaneously resolving the two big problems for digital transactions, duplication avoidance and information control, blockchain technology removes the need for centralized authority. Just like that, all the middlemen are eliminated, but trust in the transactions remain.
To summarize, blockchain is a safe, secure, digital ledger not susceptible to corruption during the conduct of business. Virtually everything of value can be logged, not just financial transactions. The potential that blockchain represents should not be underestimated as this technology will serve to democratize the global system of finance where every person with a smartphone can get equal access to an ever expanding market. Stronger protection against corruption and debasement will be the new normal. The changes blockchain technology promises will impact all of the world's societies and our very culture in a deeply profound way. We do live in interesting times.