What Blockchain Is and What Its Uses Are
Blockchain technology has the potential to change the world just as the World Wide Web and the internet did a few decades ago.
Synonymous with cryptocurrencies, some people believe that blockchain technology is a fad.
They could not be more wrong. Does the world need equitable, free, and fair systems? Do online users have a right to privacy and access to information? Does the world need an inclusive, faster, affordable financial system? How about a free, transparent, and democratic voting process?
Blockchain technology is revolutionizing old systems of governance, information storage, and business processes. It is accomplishing this feat through the power of cryptography, peer-to-peer networks, and transparent, distributed public ledgers.
The centralized data storage problem
The story of blockchain technology begins with the invention of the computer’s data processing and storage processes. The modern computer is a work of art. Innovations in programming lower the barrier of entry to mathematical computing and storage resources.
Businesses and organizations need robust data processing and storage systems to avoid heavy financial and reputation losses. For this reason, they use databases for their improved data storage and computing power. By storing data in one central server, they protect their data from loss and manipulation.
Databases have access permissions that limit data visibility, access, input, and editing. Database design allows it to display queried data, saving all the other records in the background. These storage devices are therefore easy to use and computing power efficient.
The database administrator is its central governing authority. This person issues access permissions as per the organization’s policy. In a perfect world with excellent security, checks, and balances, the centralized system of data storage is an ideal invention.
Why centralization of data is dangerous
Blockchain technology users refer to databases as centralized data storage systems. They also refer to them as a ‘single point of failure.’ Why is this? Data breaches have become so commonplace today that they no longer receive much airplay.
Data shows that hackers have compromised the data security and privacy of over 3.5 billion people since the advent of digital data records. One of the most famous data breaches on record is the 2014 Yahoo account password breaches that affected all its 3 billion accounts.
This is despite the fact that Yahoo’s user passwords were hashed or encrypted. Yahoo’s data encryption systems were easy to hack. Known as the largest data breach in the history of computing, this incident is part of the reason Verizon reviewed and lowered its offer for Yahoo assets.
Most businesses have adopted cloud computing to strengthen their security, but that has not lessened the risks of intrusion and the massive costs of successful breaches.
Blockchain technology use case
Most of the world’s data storage systems are centralized. Centralization was the only existing standard before blockchain data storage. Unfortunately, these legacy systems also have one other major and perhaps more nefarious risk factor.
When Tim Berners-Lee created the World Wide Web, he had envisioned a free information system that would become a global public square. Capitalism has, however, taken over, and the internet has become a marketplace for data.
Grasping the inherent value of data in marketing and decision-making, businesses such as Google, Microsoft, and social media platforms have built platforms that harness user data and hawk it to the highest bidder. Therefore, these big tech businesses are creating walled data gardens where they consolidate consumer data, control, and monetize it for their profit.
Businesses such as Amazon, Google, and Facebook have so much power over independent competitors that they might eventually kill off any competition and, therefore, further innovation in this sector. The aggregation and control of data is such a profitable and powerful tool that these corporates might not just stop at domination.
Eventually, these businesses could dictate what information and content their users have access to in the future. Furthermore, since they hold a massive amount of personal data, they could also easily censor anyone that stands to oppose them.
Moreover, what would happen to all the precious data that their databases hold should these businesses fold up or lose control of their systems to malicious actors?
The history of blockchain development
Visionaries like Dr. Whitfield Diffie foresaw the challenges of centralization long before they came to a head. Dr. Whitfield Diffie kicked off research into cryptography in the 70s. After research at MIT, he and Dr. Martin wrote the “Data Encryption Standard” and “New Directions in Cryptography.
These white papers would highlight the need for electronic records privacy. Their efforts would inspire many cryptographers whose combined efforts led to the development of blockchain technology and cryptocurrency.
While Dr. Whitfield Diffie is the father of encryption, the team behind the storage of encrypted data in a linked block format is Stuart Haber and W. Scott Stornetta. Leveraging the existing research on cryptography, the duo wrote a white paper in 1991 that highlighted linking data blocks in an append-only system.
Their innovation would timestamp documents and store hash values that would provide a historical timeline of a record. Stornetta’s foray into blockchain development started in the 80s while he was a worker at Bell labs.
Stornetta had also worked at Xerox, where he had witnessed a data manipulation scandal. A prominent biological sciences researcher had published remarkable but manipulated results. Alterations of data became clear after an examination of the study’s initial results.
This incident altered Stornetta’s view on the future of information records. He realized just how easy it was to tamper with centralized records. The theoretical physicist, therefore, embarked on creating an immutable system of record keeping.
With the support of Xerox and Bell Labs and cryptographer Stuart Haber, he built processes of creating trust in digital document use. Their ultimate solution involved the distribution of trust. Their record-keeping process would create multiple certifiers of a document’s timestamp.
The person or group of people known as Satoshi Nakamoto leveraged research in cryptography and distributed trust systems to create the world’s first cryptocurrency in 2008.
How does blockchain technology work?
Unlike centralized data storage systems that store information on one server, blockchain technology breaks down data into chunks. These chunks are known as blocks. Every new chunk or block of data is stored next to an older block of data.
This storage system creates a chain of data blocks hence the name ‘blockchain’. Public blockchains like Bitcoin secure their blocks of data by distributing them over a peer-to-peer network. So what is a peer-to-peer network?
A P2P or peer-to-peer network is an IT system with two or more computers linked and sharing resources. A P2P system does not have a server. You can create a simple P2P network by connecting two computers via a USB connection.
In the past, P2P networks would link computers, also known as nodes in blockchain terms, via wiring. Today, P2P networks can connect over the internet. As a result, P2P nodes share their processing power, storage, and bandwidth resources.
They also do not have a central governing authority or administrator and do not have one single point of failure. Blockchain technology couples P2P systems, cryptography, block data storage processes and block data distribution across their P2P networks to achieve data decentralization.
What are the benefits of decentralization?
Blockchain technology, therefore, creates immutable and shared records to create trust and democratize data governance. The befits of the blockchain system are;
Blockchain technology encrypts data to prevent fraud. It also stores it across a P2P network to protect it from manipulation. A hacker would need to hack most of the nodes on a P2P network to alter blockchain documents. In a centralized system, a malicious actor only needs to hack a server.
Centralized data systems are a single point of failure, not just, because they are easier to hack but because they have a single entity as a central authority. Central authorities can be open to moral failure in the age of data.
Blockchain records are not only distributed across a P2P network, but they are transparent to all network members to enhance trust. Every node on the network can access a block’s time and date stamps, which is the record’s entire history.
It is, therefore, easy to eliminate fraud with blockchain technology. This aspect also makes blockchain data history traceable.
Open and global
There are different blockchains, but the most popular are open. Therefore, any person from any corner of the globe can join a blockchain P2P network and help decentralize its data further.
Decentralized blockchain data is immutable. To change it, the P2P network has to vote. Change only happens when 51% of the nodes agree on alterations.
Enhanced speed and efficiency
Since blockchain technology seeks to enhance trust, it eliminates the need for third-party mediation. In contrast, centralized legacy systems, devoid of distributed features, need third-party actors such as bankers, insurers, and lawyers to mediate between parties and create trust.
These processes slow the speeds of transactions and add high costs as well. Blockchain technology trustless systems are more efficient than their counterparts are.
Blockchain technology applications
Decentralized systems can change just about any system on earth that has an unfair or inefficient central governance system. Some of the use cases of blockchain technology include;
Financial system management
Cryptocurrencies such as bitcoin seek to streamline and decentralize the payments sector. They create trustless payment processing systems that make efficient and fast money transfers since they do not require banks or other independent payment processors.
Ethereum network pushes the envelope further by creating decentralized applications that oversee peer-to-peer financial processes, such as lending, borrowing, trading, and investing. Consequently, decentralized finance has become one of the most disruptive of blockchain innovations.
Supply chain management
Supply chains are prone to fraud and inefficiencies because they are complex and have diverse stakeholders. Blockchain records are traceable, immutable, and transparent and can streamline supply chain processes and enhance quality control.
Loyalty rewards management
Several blockchain products today have token-based systems that store user reward data, eliminating waste and fraud. In addition, these products use tokens to reward buyers and to promote transparency.
The healthcare system has a lot of support from governments and the private sector, but it is inefficient. Like the financial system, the healthcare system is paper-based. Blockchain technology can decentralize healthcare data and, through cryptography, enhance the privacy of patient data. This aspect would improve a patient’s access to treatment and support research.
Creation of digital IDs
To access an online platform, users need to create digital identities and share their private data with these businesses. Blockchain technology can assign a unique public key or identity to an online user that protects their identity and privacy.
These public keys can provide secure access to all online platforms. In addition, decentralized digital identities also make transparent digital voting processes feasible.
Other decentralized applications of blockchain technology
- Data sharing
- Food safety
- Royalty and copyright content protection
- Workers right protections
- Energy use compliance
- Weapons tracking
- Equity trading