You’ve almost certainly heard the term blockchain. But you probably have no idea what it is or how it works, let alone why it generates so much hype. That’s OK. Most people don’t.
That hasn’t kept it from becoming a buzzword thrown around in almost every industry, from finance to shipping to fantasy football. A-list companies like Amazon, Facebook, IBM, and Walmart believe blockchain technology can track shipments, store data more efficiently, and do many other helpful things. They aren’t alone in embracing the technology, which many people believe could revolutionize logistics, food safety, banking, and even voting.
Not bad for an esoteric technology developed by the enigmatic fellow who created bitcoin.
Of course, none of that answers your underlying question: What is blockchain technology and why is everyone so excited about it?
A public digital ledger
A blockchain is essentially an immutable public digital ledger. Once someone enters a transaction, it cannot easily be changed. An analogy might help explain how it works.
Think back to when people used a checkbook register to keep track of purchases and payments. Now extrapolate that to include countless transactions by millions of people and imagine that copies of the register are held by thousands of computers. Each computer must verify a transaction before it can be noted in the register. Once verified, a transaction is written in permanent ink.
The register records transactions for a set period of time, which can be as little as 10 minutes. Once the register is filled, it is stapled shut, and labeled with a unique alphanumeric sequence that identifies it. A new register is then started and glued to the first. Eventually you wind up with a chain of registers.
That’s essentially what a blockchain is. The fact that these registers are stored on many, many computers makes them essentially unchangeable and unhackable. To continue with the analogy, you’d have to work backward, ungluing every checkbook until you got to the one containing the transaction you want to change before making the revision. And you’d have to repeat this process for every copy of the register. You couldn’t do it without it being noticed.
The biggest advantage to public blockchains is that the information can’t really be changed once it’s been logged. There’s a permanent record, and because the ledger is held by many entities, it’s nearly impossible to hack.
The entries are also made using pseudonyms, so there’s a certain degree of privacy, and no one person wields full authority over the ledger. That makes blockchain ideal for bitcoin and other cryptocurrencies.
And a great many other things — although people disagree about how effective it will be for certain applications.
A little history
Satoshi Nakamoto invented blockchain in 2008 when he developed bitcoin. Nakamoto, an enigmatic figure who has proved all but impossible to definitively identify, wanted a decentralized, permanent and public means of recording the creation and distribution of every bitcoin. Today blockchains underpin a dizzying number of cryptocurrencies. But that’s another story.
So far, people have mined more than 16 million of the 21 million bitcoins that will ever exist. Every one of them, and any transaction using them, has been recorded on a blockchain. That gives you a sense of the volume of data the technology can handle.
Although Nakamoto designed blockchain as a public ledger, it wasn’t long before permissions-backed blockchains controlled by a given company or group appeared. They don’t offer the same level of immutability because they’re held on a far smaller number of computers. And, despite the hype, the thinking behind them isn’t new.
“[Permission-based blockchains] are 20-year-old ideas,” said Nicholas Weaver, a senior researcher at The International Computer Science Institute. “Whenever someone says ‘private blockchain,’ just mentally replace that with a Google Doc that can only be updated.”
Already companies are using blockchains to do things like manage pharmaceutical information, track freight shipments and trace the origin of food. Each application touts the ability of blockchains to keep a complete record of data in a system that can’t be easily changed.