Understanding the Blockchain Technology
Many people think of blockchain as the technology that powers Bitcoin. While this was its original purpose, blockchain is capable of so much more. Despite the sound of the word, there is not just one blockchain. Blockchain is shorthand for a whole suite of distributed ledger technologies that can be programmed to record and track anything of value, from financial transactions to medical records or even land titles.
You might be thinking, we already have processes in place to track data. What is so special about blockchain? Let’s break down the reasons why blockchain technology stands to revolutionize the way we interact with each other.
Reason no. 1: The way blockchain tracks and stores data.
Blockchain stores information in batches, called blocks, that are linked together in a chronological fashion to form a continuous line: metaphorically, a chain of blocks. If we make a change to the information recorded in a particular block, we don’t rewrite it. Instead the change is stored in a new block showing that ‘X’ changed to ‘Y’ at a particular date and time. Doesn’t it seem familiar? That’s because blockchain is based on the centuries-old method of general financial ledger. It is a non-destructive way to track data changes over time.
Here is one example: Let’s say, there was a dispute between Tamjid and his brother Tanvir over who owns a piece of land that has been in the family for years. Because blockchain technology uses the ledger method, there is an entry in the ledger showing that Zaman first owned the property in 1900. When Zaman sold the property to Jahangir in 1940, a new entry was made in the ledger, and so on. Every change of ownership of the property is represented by a new entry in the ledger, right up until Tamjid brought it from his father in 2020. So, Tamjid is the current owner and we can see that history in the ledger. Now, here is where things get really interesting. Unlike the age-old ledger method which is originally a book, then a database file stored on a single system — blockchain was designed to be decentralized and distributed across a large network of computers.
This decentralizing of information reduces the ability for data tampering and brings us to the second factor that makes blockchain unique: It creates trust in data.
Before a block can be added to the chain, a few things have to happen. First, a cryptographic puzzle must be solved, thus creating a block. The computer that solves the puzzle shares the solution to all the other computers on the network, this is called proof-of-work (PoW). The network will then verify this proof-of-work and if it’s correct, the block will be added to the chain. The combination of these complex math puzzles and verification by many computers ensures that we can trust each and every block on the chain. Because the network does the trust building for us, we now have the opportunity to interact directly with our data in real-time.
And that brings us to the third reason why blockchain technology is such a game changer: No more intermediaries.
Currently, when doing business with one another, we don’t show the other person our financial or business records. Instead, we rely on trusted intermediaries, such as a bank or lawyer, to view our records and keep that information confidential. These intermediaries build trust between the parties, and are able to verify, for example that, “Yes, Tamjid is the rightful owner of this land.” This approach limits exposure and risk, but also adds another step to the exchange, which means more time and money spent. If Tamjid’s land title information was stored in a blockchain, he could cut out the middleman, his lawyer, who would confirm his information with Tanvir. As we now know, all blocks added to the chain have been verified to be true and can’t be tampered with, so Tamjid can simply show Tanvir his land title information secured on the blockchain. Tamjid would save considerable time and money by cutting out the middleman. This type of trusted peer-to-peer interaction with our data can revolutionize the way we access, verify and transact with one another. And because blockchain is a type of technology, not a single network, it can be implemented in many different ways.
Some blockchains can be completely public and open to everyone to view and access. Others can be closed to a select group of authorized users — a company, a group of banks or government agencies. And there are hybrid public-private blockchains too. In some, those with private access can see all the data, while the public can see only the selections. In others, everyone can see all the data, but only some people have access to add new data. A government, for example, could use a hybrid system to record the boundaries of Tamjid’s property and the fact that he owns it, while keeping his personal information private. Or it could allow everyone to view property records but reserve to itself the exclusive right to update them.
It is the combinations of all these factors — decentralizing of the data, building trust in the data and allowing us to interact directly with one another and the data — that gives blockchain technology the potential to underpin many of the ways we interact with one another. But, much like the rise of the internet, this technology will bring with it all kinds of complex policy questions around governance, international law, security and economics. The brief understanding about blockchain technology should be more widespread which will equip policy makers with the information they need to advance blockchain innovations, enabling economies to flourish in this new digital economy.
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