Blockchain is a relatively new type of technology that first came to the attention of the public in 2008. As part of the bitcoin system, blockchain solved the problem of creating a decentralised cryptocurrency built on a foundation of trust.
The decentralised ledger system maintains a growing list of records of all transactions that take place on the system, divided into timestamped blocks. Each block is linked to the previous block, but users can only access information within the blocks they ‘own’. Cryptography is used for security and each user is provided with a private key that they can use to access their own blocks and view or edit information within.
This revolutionary technology solved the problem that had previously haunted digital currencies – that people were able to spend the same money twice – without the requirement for a centralised authority to verify all transactions on the system. Razi Salih has worked with blockchain in the fintech industry for over a decade.
The creation of blockchain is accredited to Satoshi Nakamoto – a person or group of people operating under a pseudonym. Nobody knows who Satoshi Nakamoto is or are, other than the person or people that developed bitcoin. Nakamoto published a white paper in October of 2008, detailing the digital currency of bitcoin and the underlying system, which is based on blockchain.
Nakamoto is credited with being the first to create a peer-to-peer digital currency network that was safe from double-spending. Bitcoin is recognised as the first decentralised cryptocurrency network, but there were other forms of digital currency beforehand, The PDF attachment looks at some of forms of digital currency that predated bitcoin.
Private Keys and Public Keys
Within a blockchain system, each user has a private key and a public key. Users can only transfer value from the blocks they own, and they must have access to their own private key, and the public key of the person or entity that owns the blocks they are transferring to. Each transaction is recorded using cryptography and users cannot edit information in any blocks other than their own. A definition of cryptography can be viewed in the embedded short video.
Keys can be used to transfer ownership of blocks, which contain financially valuable units of cryptocurrency. This system not only acts as a record of who owns what, but also establishes identity and therefore trust. Nobody can edit any aspect of a blockchain unless they have access to the corresponding keys.
Any edits made that are not properly verified through use of the correct keys are automatically rejected by the system. While in theory these keys could be stolen, they are much simpler to store securely than physical cash or other valuables.
The Transfer of Value
The internet as a whole is a decentralised system that almost everyone in the modern world has some experience of using. However, it is only recently that blockchain has solved the issues recurrent within the transfer of anything of value, such as cash, intellectual property or rights of ownership, without recourse to a central authority.
Even popular online payment methods such as PayPal require identification from users in the form of a credit card or bank account, which have to be verified by a central authority or bank. Blockchain therefore has huge potential to cause disruption within the financial services industry, as it removes the need for an entity to act as central authority. While this may cause ripples within the financial services industry, efficiency for users is increased massively.
Blockchain today is used for far more than just regulating cryptocurrencies – the infographic attachment shows some of the more surprising areas in which blockchain is utilised.