Explore the basics of blockchain technology, including cryptocurrencies.
- The emergence of blockchain technology as an important instrument of change itself, is somewhat of a surprise, since its primary function, to enable cryptocurrency, was supposed to be its defining purpose. Blockchain, or distributed ledger technology, DLT, came to life as the technology backend of the cryptocurrency, Bitcoin, in 2009. Bitcoin requires a database of validated and secure transactions.
These transactions must be immutable and easily associated with owners. For example, if you currently own five Bitcoins after series of currency purchases and trades, each of those transactions must be tied to you in order to resolve to your account total. The database stores the transactions in blocks of data in sequence, a chain, so to speak, where each new block is dependent on the previous block.
Fundamentally, this is the technology, A database called blockchain. In the first few years after the emergence of Bitcoin, blockchain technology was relatively unknown. However, there were properties of blockchain technology that made it appealing outside the domain of cryptocurrency. Innovators discovered that the very qualities of distributed ledger technology that made it perfect for insuring the integrity of Bitcoin meant it could be used as a way to store all types of data in a more secure and validated manner.
This would only be the beginning of its rise to prominence as a new disruptive technology. While traditional structured and unstructured databases have served us well for several decades, they do have some fundamental security weaknesses. These include issues with account administration and ensuring only the right people have access to certain data. Innovators have worked hard to plug these gaps, but challenges persist that, until distributed ledger technology, have not been elegantly addressed.
Unlike traditional databases that use authentication to permit specific rights, distributed ledgers, DLTs, use a consensus mechanism to enable permissions. This consensus mechanism ensures that only transactions allowed by predetermined rules can take place. It also provides the assurance that a transaction is associated with a specific person. To make this real a DLT can ensure that a digital-based real estate transaction is authentic, and as it moves between stakeholders it retains its integrity.
A DLT can ensure that a vote over the internet is, in fact, authentic, and associated with a specific individual. The inherent design of blockchain technology makes fraud and transaction manipulation, something common in traditional databases, remarkably tough and near impossible. DLT can be used for a massive variety of digital transactions and database stores: from supply chain, to financial services, government, retail, and the internet of things.
This technology is finding a home in solving all types of challenges and creating new opportunities. DLT becomes even more valuable when complex rules can be codified into the blockchain database. Known as smart contracts, these block chains not only facilitate data management, but can trigger events based on certain conditions being met. What we're talking about here is the idea of distributed applications, or DApps, as they are known, that can execute all types of actions independent of checking in on a central server.
The code base is distributed among users and devices. This creates enormous efficiencies and also eliminates the bottlenecks and redundancies of traditional hierarchical systems. Let's look at medicine that is required to be kept at a certain temperature as it's transported. It can be carried in internet-connected blockchain-enabled packages. If conditions change, a smart contract may be programmed to send a notification, or perhaps raise or turn down the temperature.
These actions can happen locally and with full integrity. Blockchain technology eliminates our need to rely on traditional trust. We call this a trustless system. This increases transaction integrity, and eliminates the need for brokers and other third party mediators. If the possibilities of DLT are maximized, it has remarkable capacity to disrupt all manner of business models. It may force us to rethink the very nature of the centralized organization.
For sure, it will create new ways of conducting business. If you'd like to learn a lot more about the enormous potential for blockchain, feel free to check out my courses on blockchain technology.
- History of the four industrial revolutions
- What has changed in science and culture
- Core technologies: AI, Internet of Things, and more
- Impact of the fourth industrial revolution
- Taking action