Confused as to what a blockchain is? While you’ll find a multitude of guides online, many of them can end up adding to the confusion by introducing new foreign lingo or they go too deep into the technical side. So, here’s a basic guide to blockchains that aims to explain the technology in layman’s terms…
What exactly is a blockchain?
Imagine a notebook where every entry is written in permanent ink. Everyone has access to this notebook, but no-one can alter or erase any entry. That’s essentially what a blockchain is: a digital ledger for recording transactions that cannot be tampered with.
Blockchains get their name because every entry is recorded as a ‘block’. These blocks contain digital information related to the transaction. Incredibly complex math (known as cryptography) is used to chain each block together. Once a block is added to the chain, it cannot be unchained.
Every blockchain is decentralized – unlike a bank statement or government ledger, no-one owns a blockchain. Instead, a network of computers called ‘nodes’ automates the creation of each block. Humans must still verify every transaction before a block is added, but ultimately no single entity has control over the ledger. This makes it a way of storing information securely and transparently without the need for a middleman.
What are blockchains used for?
Blockchains have a few different uses. Some of these uses include:
- Cryptocurrencies: Cryptocurrencies (decentralised digital currencies) like Bitcoin are not controlled by a government or bank. Blockchains are therefore important for providing some kind of record of transactions. You can use blockchains to check that a cryptocurrency transaction has gone through. Blockchains can also help to flag up fraud and theft by providing public evidence whenever cryptocurrency moves to another account.
- Supply chain tracking: Companies like Walmart have started to use blockchains to record every movement in a supply chain from farm to shelf. If there are problems in the supply such as a contamination scare, the journey of supplies can quickly be traced back to detect the source of the problem.
- Healthcare records: Some healthcare services have started using blockchains to store patient records. Every update to a patient’s personal records can then be highlighted to check for unauthorized changes.
- Voting systems: The idea of using blockchains for voting systems has been proposed. This could help to reduce tampering during elections, although the technology is yet to be put into practice.
What are the benefits of blockchains?
Blockchain technology has several benefits over traditional automated ledger keeping:
Transparency
Blockchains allow each transaction to be visible to everyone (you can search for transactions using a block explorer). Picture being able to audit a company’s books without having to go through an accountant.
Security
You can’t just hack one computer to tamper with a blockchain. The data on a blockchain is duplicated and stored across thousands of computers, which makes rewriting history virtually impossible.
Decentralization
Because blockchains are not controlled by a single authority, no-one has the power to alter them or delete them or censor them.
Efficiency
Blockchains cut out intermediaries, speeding up the recording of data. In the case of cryptocurrencies, they can speed up transactions between countries while also eliminating bank fees.
Wrapping things up
Blockchain technology is simply a new digital way of recording transactions. It’s unique because it is decentralised – and therefore more transparent and more secure. This form of digital recordkeeping is essential to cryptocurrencies and is likely to be used widely in many industries (including healthcare and supply chain management) in the future.
