In today’s world, formal centralized institutions such as banks, governments and corporations govern the way we create and exchange value among each other for goods and services. Under this centralized system of control, consumers have very limited say over the rules and level of transparency in the way business is conducted. Often times the need for middleman services also increases our vulnerability to hacking and corruption during online transactions. However, all that is about to change with the emergence of the radical technology – block-chain.
Block-chain and crypto-currencies have caused quite a stir over the past few years. Just yesterday, the price of the world’s largest digital currency, Bitcoin, surged by over 20% in a span of 24 hours. Crypto-currencies are currencies that exist solely in digital form and this is all made possible through block-chain technology. Owning these digital coins transcends the traditional idea of ‘ownership’ as instead of owning money physically or in your bank account, you have the ability to store or transfer ‘ownership’ to others through the creation of a record encrypted in the block-chain platform. Rather than using bills, you are essentially transferring pure data to transact and exchange value for goods and services.
While many know it vaguely as the technology behind bitcoin, block-chain has become a buzzword that has been dubbed “digital gold” with the total value of the currency close to USD$9 billion, yet very few truly understand the complexity of how it works. With that in mind, here are the major things you need to know to help you decode the enigma that is block-chain.
What Is It?
The block-chain entrepreneur and researcher, Bettina Warburg explains it best as, “a digital decentralized database that stores a registry of all assets and transactions across its peer-to-peer network. Essentially, it is a secured online public registry of who owns what and who transacts what. These transactions are safely stored through cryptography and over time that transaction history becomes locked in blocks of data that are then crypto-graphically linked together.” This creates an immutable, unforgeable record of all the transactions across this network that is then duplicated thousands of times on every computer that uses it, hence the more people that transact in the network, the more secure this database becomes.
The perfect analogy offered by Warburg likens the technology to Wikipedia. She states that; “We can see everything on Wikipedia, it is a composite view that is constantly being changed and updated. We can also track those changes over time on Wikipedia and create our on Wikis as it is just a data infrastructure that can be replicated.”
Similar to this; “on Wikipedia, it is an open platform that stores words and images to that data overtime, on the block-chain it is an open infrastructure that stores many kinds of digital assets like Bitcoin, ownership of IP, a certificate or a contract, real world object, personal identifiable information” Warbug explains. Rather than the Internet of information, it is the Internet of value or of money.
What’s all the hype about?
Among the multitude of revolutionary benefits block-chain offers, it essentially provides us with the technological capability to fundamentally change the way we record human exchange, be it the exchange of currency, or any form of digital and physical assets and even our personal information in a decentralized database that is transparent and incorruptible without any third-party fees.
Since all information held on a block-chain platform is not located in a single company or app but continually spread across the various computer networks and servers around the world that use it, there is no centralized version of this database that exists for any hacker to corrupt. The block-chain network lives in a constant state of consensus whereby the system is refreshed and updated every ten minutes. For block-chain, just like a self-auditing network, it reconciles and updates every transaction that occurs in ten-minute intervals with each group of transaction referred to as a ‘block’.
Block-chains have enabled us to send money directly and safely, without going through intermediaries like a bank, a credit card company, or PayPal, thereby eliminating any third-party costs. However, its potential uses extend far beyond the mere reach of finance as any industry dealing in any form of transaction or storing a database of information can utilize this technology to enhance efficiency and security. Hence, crypto-currencies are just the tip of the iceberg; in the coming years we will continue to see the insertion of block-chain technology into numerous industries from real estate to healthcare databases.