If you consume any kind of media, you’ve undoubtedly heard the terms blockchain, cryptocurrency, and Bitcoin. The extreme spike in the value of these digital assets, specifically Bitcoin, is a major disruption to the financial industry and it’s propelling what was once a niche investment into the mainstream. Although investing in cryptocurrency is lucrative, it’s difficult for many to understand exactly what they’re investing in aside from “crypto-hype.” Cryptocurrency and the technology it utilizes, blockchain, are more than hype. Both are mediums that allow individuals to invest in uses for a technology that has the ability to be as revolutionary as the internet itself. So what is blockchain?
Blockchain technology is decentralized.
The way the internet is currently set-up, information is stored on a central server. In order to access the information, your device sends a request to the server and the information is sent back to the device. Digital cloud storage works the same way – send a request and get access to information. This system works fine unless the server is unavailable and/or access to the server is restricted by a paywall (which is the goal of Net Neutrality legislation). However, with blockchain technology, there is no central server because its information is decentralized. That means rather than information being stored in one central location, it’s distributed among all of the devices within the blockchain.
To better illustrate this concept, William Mougayar, a blockchain specialist, uses the example of collaborating on a Microsoft Word document and collaborating on Google Docs document. In order to collaborate on a Microsoft Word document, you have to make edits, then send it to your partner, who can then view the document and make edits themselves, then have them send it back to you. Using Google Docs, any user with access to a document can make edits that are updated and visible in real-time. And of course, the document itself is always available to all of the users. This is a good way to start thinking about the decentralized aspect of blockchain technology.
Blockchain technology is secure.
The idea of a decentralized network causes some concerns about network security issues. However, the blockchain eliminates many of the security risks that come along with centrally held data. First, all information on the blockchain is completely encrypted on two levels, using a “public key” and a “private key.” A “public key” is a long strand of numbers that are used as your address on the blockchain (think IP address). If users send information to you on the blockchain, they’ll use this public key. The “private key” is like a password that gives you access to your digital assets on the blockchain.
The second line of defense that blockchain offers is a result of decentralization. Within the blockchain, every user has a complete ledger of all of the transactions that occur within the blockchain. Every time a transaction occurs, it’s must match everyone else’s ledger to be validated. However, if a transaction doesn’t mesh with everyone else’s ledger, the transaction is disqualified. These two layers of defense make blockchain extremely difficult to hack.
So, what is blockchain? The answer is constantly changing as programmers are finding new uses for this amazing technology. Come out to Milk Street’s monthly meetup to discuss, and stay up to date, on all things blockchain and cryptocurrency.