Many people think of blockchain as the technology that powers Bitcoin. While this was its original purpose, blockchain is capable of so much more.
Despite the sound of the word, there’s not just one blockchain. Blockchain is shorthand for a whole suite of distributed ledger technologies that can be programmed to record and track anything of value from financial transactions to medical records or even land titles.
You might be thinking: we already have processes in place to track data.
What’s so special about blockchain? Let’s break down the reasons why blockchain technology stands to revolutionize the way we interact with each other.
Reason number one: the way it tracks and stores data.
Blockchain stores information in batches, called blocks, that are linked together in a chronological fashion to form a continuous line. Metaphorically, a chain of blocks. If you make a change to the information recorded in a particular block, you don’t rewrite it. Instead, the change is stored in a new block, showing that x changed to y at a particular date and time. Sound familiar?
That’s because blockchain is based on the centuries-old method of the general financial ledger. It’s a non-destructive way to track data changes over time.
Here’s one example: Let’s say there was a dispute between Anne and brother Steve over who owns a piece of land that’s been in the family for years. Because blockchain technology uses the ledger method, there is an entry in the ledger showing Adam first owned the property in 1900. When Adam sold the property to Dave in 1930, a new entry was made in the ledger, and so on. Every change of ownership of this property is represented by a new entry in the ledger.
Right up until Anne bought it from their father in 2007. Anne is the current owner and we can see that in the history of the ledger. Now, here’s where things get really interesting. Unlike the age-old ledger method, originally a book, then a database file stored on a single system, blockchain was designed to be decentralized and distributed across a large network of computers. This decentralizing of information reduces the ability for data tampering and brings up to the second factor that makes blockchain unique. It creates trust in the data. Before a block can be added to the chain, a few things have to happen. First, a cryptographic puzzle must be solved, thus creating the block.
The computer that solves the puzzle shares the solutions to all of the other computers on the network. This is called proof of work. The network will then verify this proof of work and if correct, the block will be added to the chain. The combination of these complex math puzzles and verification by many computers ensures that we can trust each and every block on the chain. Because the network does the trust building for us, we now have the opportunity to interact directly with our data in real-time. And that brings us to the third reason blockchain technology is such a game changer. No more intermediaries. Currently, when doing business with one another, we don’t show the other person our financial or business records, instead, we rely on trusted intermediaries, such as a bank or lawyer. To view our records and keep that information confidential.
These intermediaries build trust between the parties and are able to verify for example that “Yes, Anne is the rightful owner of this land.” This approach limits exposure and risk, but also adds another step to the exchange, which means more time and money spent.
If Anne’s land title information was stored on a blockchain, she could cut out the middleman, her lawyer, who would ordinarily confirm her information with Steve. As we now know, all blocks added to the chain have been verified to be true and can’t be tampered with so Anne can simply show Steve her land title information secured on the blockchain. Anne would save considerable time and money by cutting out the middleman.
This type of trusted peer to peer interaction with our data can revolutionize we access, verify and transact with one another. And because blockchain is a type of technology, and not a single network, it can be implemented in many different ways. Some blockchains can be completely public and open to everyone to view and access. Others can be closed to a select group of authorized users, such as a company, a group of banks or government agencies. And there is hybrid public-private blockchains too. In some, those with private access can see all the data, while the public can only see selections. In others, everyone can see all the data, but only some people have access to add new data.
A government, for example, could use a hybrid system to record the boundaries of Anne’s property and the fact that she owns it, while keeping her personal information private. Or it could allow everyone to view property records but reserve to itself the exclusive right to update them.
It is the combination of all of these factors – decentralizing of the data, building trust in the data, and allowing us to interact directly with one another and the data that gives blockchain technology the potential to underpin many of the ways we interact with one another. But, much like the rise of the internet, this technology will bring with it all kinds of complex policy questions around governance, international law, security and economics. We seek to bring trusted research that will equip policymakers with the information they need to advance blockchain innovations enabling economies to flourish in this new digital economy.
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