In this video, learn how blockchain might be implemented to solve some of the most pressing issues facing modern society, including identity management and fraud.
- Today, the Internet plays a significant role in how we communicate, learn, work, and play, and so much more. It has decimated industries like the newspaper business, reinvented others, like how we manage our money, and created new industries such as social media, but this vast network of networks has some stubborn problems. We face ongoing questions such as, is the person you are doing business with online really who they say they are? Is a service real? And are only authorized people being granted access to private systems.
We can all think of hundreds of other examples of trust on the Internet. Healthy ecosystems rely on trust. Innovators have worked hard to solve these challenges, and we've come a long way and yet, we still get hacked. Our systems and data bases are compromised, made unavailable, money and identities are stolen, and our confidence to further innovate using the Internet is stifled and at worst impeded.
If we want ironclad online voting, workable digital currencies, confidence in machines talking to machines, self-driving cars that securely negotiate with each other, improved methods to authenticate identity, and more, we're going to need a more secure and trustworthy Internet. It's going to need to begin with how we manage data and databases. A core characteristic of a traditional database is that it has essential authority that governs it.
For instance, typically any database that is created and owned by an organization has total rights to that database. They can decide who has access and what type of access they can have. They decide what is stored in it, what is deleted, and what is archived. However, this has at least two potential flaws to it. First, with one master database with one major keyholder for each organizational need this can result in a single point of failure.
The second major flaw is that all power is held by the central authority. Now in general, this is okay. For example, if you run an e-commerce website you probably want total control over it. Your own central authority, perhaps you as CEO, decides all aspects of that environment, including shutting it down. What central power can do, however, is exert authority that is subject to bias, such as limiting access for subjective reasons. When databases power important and influential systems in the private and public sector rights to access becomes a complex topic.
In most cases, people remain the final arbiter of the validity of a transaction. We see this in contract work. A contract between two entities completed over the Internet still requires one or more central authorities to validate data. For example, with a mortgage banks must validate savings and approve loans. Title companies must validate properties and legal professionals must validate signatures and other contractual requirements.
Each one of these central authorities has unique power that levies considerable overhead in a mortgage transaction. The transactions in the varied databases all take time to process, cost money, are vulnerable to hacking, provide limited participation from those involved, requires special skills and can be error prone. Up until now we've generally been okay with this. The blockchain, however, solves almost all of these challenges.
Let's discuss how it does this. The blockchain is a new type of database. Instead of one single database residing on a single server in a data center, a blockchain database is installed on individual computers used by the people who used the database. In fact, the identical database is installed in every computer of every user who uses that database. We call it a distributed database because of this. Now, in order to create a new entry in this distributed database all participating computers must agree to the change.
Consensus must be reached. For example, if we use the metaphor of payment, if a person attempts to make a payment from one user to another and does not have sufficient funds in their account the blockchain participants will not permit the transaction. In addition, there are participants in the network called miners who contribute processing power to the network to solve mathematical problems in exchange for a reward. That is used to ensure that only valid new transactions may be added to the database.
This is a crudely simplified explanation for now. Later videos will go deep into this.
- Blockchain basics
- Public and private keys
- How blockchain enables bitcoin
- Blockchain and the electrical grid
- Blockchain and identity management
- Risks of blockchain