Cryptocurrencies are all the rage these days. Will cryptocurrencies become the new normal? (an all too familiar term?) Is it all a fad? Doge Coin to the moon? Much of these discussions revolves around the possibility of mass adoption, the promise of decentralized financial systems (DeFi) and more importantly… speculations over what Elon Musk is going to Tweet next.
However, beneath the spectacle of futuristic transactions and financial investments, lies a steady workhorse fueling this revolution. Often getting less attention, the blockchain technology is what I’m talking about.
Frequently used together with Bitcoin, blockchain is not to be conflated with Bitcoin or any other cryptocurrencies, though it is an integral part of their functioning. Essentially, blockchain is a database while Bitcoin is an implementation of that technology. Even though blockchain only garnered mass attention with its Bitcoin implementation in 2008, the blockchain technology was actually first conceptualized and published in 1982 by David Chaum in his dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.”
As mentioned, a blockchain is essentially a database. What it looks like is, as its name suggests, a chain of blocks. The core concept is that data is stored in blocks chained together where due to several mechanisms, data corruption is near impossible. This security is afforded by many different mechanisms, depending on its application. However, the two core ideas are peer-to-peer (P2P) networks and cryptography.
What a P2P network means is that instead of a centralized avenue or server storing all the data, two or more personal computers (PCs) are connected, and resources are shared directly, forming a network. How this looks like for blockchain applications is that every PC (or node) in the system stores the same blockchain and any addition to the blockchain requires an at least fifty per cent consensus in the network. P2P network makes tampering with the stored data especially difficult with data being stored in more than one avenue.
Coupled with cryptography, blockchains are almost impossible to corrupt. While many cryptographic methods are applied to blockchains such as the Proof of work (PoW) and the Proof of Stake (PoS) methods, the key points are that each block has a unique cryptographic hash that is specific to the data stored in that block. To add to the blockchain, a cryptographic puzzle has to be solved wherein the new block created would also contain the unique hash of the previous block. In other words, to tamper with the data of a block, every subsequent blocks also need to be tampered with. Together with a P2P network, that is quite an outlandish task.
What this technology promises are open, distributed digital ledgers. Transactions can be recorded in a transparent yet secured and permanent manner.
As seen in DeFi, to consider blockchain’s potential is not to look at what it can do, but rather to look at what it can enable. Besides cryptocurrencies, blockchain can act as an enabler in many areas. A simple case application would be that of large businesses. While customer request processing may seem quick and seamless on the level of customer and provider interactions, oftentimes the process is not as simple as it seems with approvals and verifications needed from different departments that for security reasons, do not share the same access to databases. With blockchain technology, the process is streamlined without compromising on security, thus securing cost savings and efficiency for businesses. This is just one generic application. Blockchain has the potential to revolutionize industries from FinTech to Healthcare and more.
Harvard Business Review reports that as with other technological adoptions, blockchain technology could be decades away from reaching its full potential. However, it is already making waves in the financial world with its application in cryptocurrencies. Nobody can say anything for sure, but perhaps it is worthwhile to take a look behind the curtain to see what is making these waves and just maybe, peek at what might lie ahead.