Although the term “blockchain” is becoming more and more commonplace, there are still many of us who wonder how it even works. What is the block made out of? How does it become a chain? And, is it truly as uncrackable and safe as experts claim?
Today, we’ll walk you through the basics of blockchain and how it can begin to shape our reality sooner than we might think. For more information on fintech trends in general, check out this blog post.
1. What is blockchain
Blockchain is defined as a type of “distributed ledger,” which still doesn’t mean much to most people. In practice, blockchain technology involves connecting a series of data blocks in a public database.
For example, if you sell your house, you can create a block of information stating the original ownership. You can then send this block to the next proprietor, thus establishing a chain of ownership that can be accessed from anywhere.
Although this increase of access does sound a little scary, it also creates transparency and reliability. Your data might be accessible to anyone with the right information, but it also can’t be altered, misplaced, or deleted.
2. What’s in a blockchain
Your blockchain will be made up of three primary parts: the data, a hash, and the previous block’s hash.
The data is the information you want to upload into the network, such as a certificate of ownership, an ID, or a contract.
The hash is a number you receive after encoding your data. It will be made up of 64 characters, and the only way to decode it is by typing in the exact information encoded within it. Even a misplaced period in a lengthy document will render no results.
Finally, the previous block’s hash is what links one block of information to another. This way, you can establish a chain of ownership or transfer from one user to the next.
3. How to create one
First, you would need to gain access to a blockchain network, be it public or private. Most public networks are also the basis for cryptocurrencies, such as Ethereum and Bitcoin.
However, we won’t get into cryptocurrencies today, given they depend on regulations and international endorsement. Instead, we’ll focus on using blockchain technology to store information so we can get a clear sense of what happens to our data once it’s out there.
If we take a certificate of ownership, we can upload it to the network by encoding the information within a hash. Then, we send this hash to another user, leaving a record in its stead. The next time the asset is sold, a new hash will be added to the chain, this time revealing an updated contract that is still linked to the original file.
As long as you have the hex code or the document, you can use the blockchain as proof of ownership. Georgia is a real-life case study of this technology. Since 2016, the country has been using blockchain technology for land registries.
4. What blockchain can be used for
Cryptocurrency is the most famous blockchain application, but the possibilities are endless. As we mentioned before, you can use blockchain to certify purchases, be them real estate or otherwise. It can be used as an ID or as a voting system. Because it can’t be altered or deleted, anything uploaded into a blockchain ecosystem will remain.
If blockchain is upheld by law, then there would be no need for a third party to confirm the legitimacy of a purchase. However, that doesn’t mean its adoption is without risks or implications, especially when it comes to currency.
At the end of the day, for blockchain to work legally and globally, it needs the support of the international community. Right now, you’d run the risk of owning certain assets via blockchain in your home country just to find that it’s not valid in another state or jurisdiction.
That being said, blockchain is still an exciting technology that could revolutionize our way of doing things. Only time will tell whether we truly move in that direction as a society or not.
5. Safety implications
For the most part, blockchain is immutable. This is thanks to encryption and the fact that information is stored in many locations (decentralized). To alter a blockchain, you’d need access to 51% of the computers found in the same ledger, according to the World Economic Forum.
Now, it is precisely the immutability of it that brings blockchain into question. With GDPR (General Data Protection Regulation) in the EU, and other data privacy legislation coming into play around the world, we need to consider what happens when all of our information is available online, forever.
The blockchain era is still green. So, there will be a learning curve throughout its implementation and possible proliferation. From our end, our promise remains the same: to incorporate technology insofar as it serves all of our customers without leaving anyone behind.