You may have heard the word being uttered all over the web but what exactly is blockchain?
It's practically impossible to go online these days and not see the word blockchain in a tweet or a post. Beyond its basic meaning of a vast database for transactions, what exactly is blockchain and how is it defined?
What is a blockchain?
In simpler terms, blockchain is a collection of information that is stored electronically on computers. Blockchain collects information and piles together in groups also known as blocks. These blocks all hold a set amount of information and are limited in the amount of data they can hold. When a block reaches its maximum capacity, a new block is formed and attached to the previous one, creating a chain.
The structural gathering of data in blocks is also irreversible and is given a timestamp when it is added to the chain. In cryptocurrency, these blocks are stored on computer farms but they don't need to be in a single, centralised location. These can be stored in geographically distinct locations and can be managed by either individuals or groups. This is an example of decentralised blockchains but blockchains operated by a single organisation and stored in servers under one roof also exist.
A decentralised application of a blockchain is transparent and can be viewed to determine their history. Since, these blocks are irreversible, they can easily correct themselves in case of an error within one of the blocks by cross referencing the data before or after it. It also makes it simple to trace hacks within the system which means if any of the blocks are tampered with or moved, it would be easily identifiable.
In cryptocurrency, these blocks act as records for a multiple transactions. Each transaction that occurs creates a block and after this block is verified, it is added to the chain. Each of these blocks contain a cryptographic hash of the previous block in the chain along with a timestamp and transaction details.
The technology was invented by Satoshi Nakamoto in 2008 to serve as a public ledger for Bitcoin. Interestingly, very little is known about the person or the group behind the name. Many have theorised that the name is just a pseudonym for the group of people who invented bitcoin and developed the first blockchain database.
What else is blockchain used for?
Given its security and transparency when it comes storing data, blockchain has many uses besides cryptocurrency. Many medical institutions have already begun using the technology to transmit and store medical records of patients. This gives them control over what blocks to share and what to label as sensitive information.
It's also seeing many uses within the music industry, where artists are using the technology to create transparent contracts so that they can easily track royalties and get paid on time. Spotify, the popular streaming service already has an in house team that it gained with the purchase of blockchain start-up Mediachain labs. It's using the technology to connect artists with various right holders for tracks hosted within the service.
It also has uses within real estate space and is being used to create a decentralised registry system for homes.
IoT (Internet of things) devices have also turned to blockchains for increased security by creating decentralised authentication systems while using biometric and password-free solutions for authentication.
What are some of the dangers of blockchain?
Remember the Elon Musk tweet that had crypto markets falling overnight? Turns out there is some truth to it. Decentralised applications of technology are very energy reliant. To update a blockchain in cryptocurrency like bitcoin, miners rely on algorithms and time-consuming, computationally intensive mathematical problems to create a verified block. The problem is that it takes a lot of electricity to do so. Not all blockchains are this computationally intensive, which is why not all cryptocurrency is made equal. It still requires complex software to develop alternative algorithms which is both time-consuming and difficult to get right.
Despite the promise of decentralisation, the most efficient of blockchains are ironically guarded over by a few central groups. This defeats the purpose of why the technology was created in the first place.
While more secure than most transactions, it is still possible for blockchains to get hacked. Imagine a blockchain where each individual's identity is stored on a block using a cryptographic key. If someone manages to get a copy of that key, however difficult that may be, they can very easily use to impersonate the owner of that key. If the key is lost or destroyed, control of that identity or asset is also gone forever.
The decision to accept new transactions on the blockchain also relies on coding and automation. Anyone with access to the dominant fork in a chain can reprogram access to new transactions creating a problem.
In 2017, a group of hackers managed to find a coding flaw in an Ethereum blockchain. They used it to siphon away currency from the original owners. While people found out what was happening, there was nothing that could be done to stop them since the blockchain was not centralised and couldn't be turned off. The solution came in the form of some white hat coders who stepped in and programmed in new statements to ignore or delete old transactions, thereby reverting the money to the original owners. Basically, stealing the money faster than the hackers and then giving it back.
Blockchains also pose a problem for data regulation acts like the GDPR. If a person wants his data scrubbed from the blockchain, it would be near impossible to do so because it would require a common agreement between all the blockchain servers in the world. The best that can be done is a filter that can be put in place to prevent the data from showing up but it will still be there.
Blockchains are also susceptible to end-point vulnerabilities. Since it is near impossible to guess keys that are part of a block, a hacker will instead look for the weakest link in the system to attack which is a device that is being used to access the said data.
If a hacker manages to gain access to an endpoint, he can deploy malicious code that gives him high-level access within the chain.