What is blockchain?
Ledgers have been used since ancient times to record assets such as money and property. They have moved from being recorded on clay tablets to paper to bytes. Now, for the first time, algorithms enable the collaborative creation of digital distributed ledgers. Enter blockchain.
A distributed ledger is essentially an asset database that can be shared across a network of multiple sites, geographies or institutions. All participants within a network can have their own identical copy of the ledger. Any changes to the ledger are reflected in all copies instantly. The security and accuracy of the assets stored in the ledger are maintained cryptographically through the use of ‘keys’ and signatures to control who can do what within the shared ledger.
Underlying this technology is the ‘blockchain’, which was invented to create the peer-to-peer digital cash Bitcoin in 2008. In essence, the blockchain is a giant ledger that keeps track of who owns how much bitcoin. The coins themselves are not physical objects, nor even digital files, but entries in the blockchain ledger: owning bitcoin is merely having a claim on a piece of information sitting on the blockchain.
The same could be said of how a bank keeps track of how much money is kept in each of its accounts. But there the similarities end. Unlike a bank’s ledger, which is centralised and private, the blockchain is public and distributed widely. Depending on the blockchain, anyone can download a copy of it. Identities are protected by clever cryptography; beyond that the system is entirely transparent.
The distributed nature of a blockchain database means that it’s harder for hackers to attack it and it means that the data is kept secure and private. In theory then, the blockchain method makes fraud and error less likely and easier to spot.
A number of industries, from financial institutions, banks in particular, shipping companies, cyber security and telecoms as well as governments, are exploring the possibilities of using blockchain technology in order to offer cheaper and more efficient services.
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