What is Blockchain?

The difference between Blockchain and Bitcoin

Before we explore Blockchain in depth, it’s worth looking at the key differences between Blockchain and Bitcoin, which are very closely associated with each other. Both were conceived by a mysterious figure who goes by the alias Satoshi Nakamoto; while both ideas are revolutionary, the key distinction is this: Blockchain was created for the implementation of Bitcoin, has a broader application. Bitcoin is ultimately just a cryptocurrency, and is actually very similar to any other currency in its use.

So, then, what is Blockchain?

Blockchain, put simply, is a way to store data or transactions on a growing ledger. The way that it works allows us to safely rely on the data shown to us, because it is built on the concept of decentralized consensus. 

Decentralized consensus is reached by a Blockchain because each block containing some data (for example, a certain amount of Bitcoins heading to someone's account) within the chain has an encryption called a hashing function that connects it to the next block along with a time stamp. This chain of blocks continuously grows, and once a transaction is recorded, it is immutable--there is no going back and altering the data, only building on top of it. Everyone sees the same unchanged data on a Blockchain, and therefore actions based on this data, such as sending money to someone, can be safely taken because the information shown cannot be disputed because every party agrees.

Other uses for Blockchain

Although Blockchain is most commonly associated with Bitcoin, there are many different uses for this technology. Blockchain will change our way of not only working with one another, but also storing data, identifying ourselves, and even voting, by making these actions easier and secure by design. Below are eight ways Blockchain technology will revolutionize the way we conduct business, and the way governments function. All of these areas create opportunities for developers.

Cryptocurrencies

The most common use for Blockchain is, as mentioned above, to create or mine for cryptocurrencies. You can set up a store to accept these cryptocurrencies as payment, and you can send money around the world to different people, or mine for money by using a tool called a miner, which collects money every time a new transaction is made. These currencies are theoretically totally safeguarded from theft.

Digital assets

Just as you might do with regular currencies, you can create financial securities using cryptocurrencies. For example you can use Bitcoin to create derivatives, such as futures contracts, based on what you think the future value of Bitcoins will be. You can also create stocks and bonds, and almost any other security you might want to trade.

Decentralized exchanges

In a similar vein, Blockchain can be used to make financial exchanges safer, faster, and easier to track. A decentralized exchange is an exchange market that does not rely on third parties to hold onto customers’ funds and instead allows customers to trade directly and anonymously with each other. It reduces risk of hacking because there is no single point of failure and it is potentially faster because third parties are not involved.

Smart contracts

Smart contracts or decentralized applications (DApps) are just contracts that you can use in any way you might use a regular contract. Because they are based on Blockchain technology, they are decentralized and therefore any third parties or middlemen (i.e. lawyers) can be effectively removed from the equation. They are cheaper, faster, and more secure than traditional contracts, which is why governments, banks, and real estate companies are beginning to turn to them.

Distributed Cloud Storage

Blockchain technology will be a huge disruptor in the data storage industry. Currently a third party, such as Dropbox, controls all your cloud data. Should they want to take it, alter it, or remove it, they are legally allowed to do so and you won't be able to do anything to stop them. However, any one party cannot control decentralized cloud storage, and therefore your data is more secure and untouchable by anyone you wouldn't want to interfere with it.

Verifiable Data (Identification)

Identity theft is a problem caused by lack of security and information being held by a centralized party. Blockchain can decentralize databases holding verifiable data like identification and make them less susceptible to hacking and theft. Once verifiable data is decentralized, it can easily be checked for accuracy by third parties needing to access it. Data breaches, such as what happened to Anthem in early 2015, are becoming more and more of a common occurrence, which indicates that we need our technology to adapt in order to keep up with the ever-changing landscape of the Internet. Blockchain will be the answer to this; it's just a matter of when this change will happen.

Digital voting

Perhaps the most relevant item on this list is digital voting. Currently an innumerable amount of countries are host to reports of voter fraud, and whether they are true or not, this casts doubts on the credibility of any administration’s leadership. Additionally, using Blockchain technology could eventually allow for online voting, which would assist in correcting low voter turnout because it makes voting easier and more accessible to all citizens.

In 2014, a political party in Denmark became the first group to use Blockchain in their voting process. This secured their results and made them more credible. It would be advantageous for more countries to begin using Blockchain to verify election results and some might even begin adopting the ability to count online votes for increased participation.

Academic credentialing

At least at one point in your life, you have probably heard about people lying about their alma mater on their resume, or even editing their transcripts. By having schools and certification programs upload credentials to a decentralized database, Blockchain can make verifying these important details fast and painless for all prospective employers.

What are the key takeaways?

Despite the lack of implementation in current businesses and governments, Blockchain will change our society for the better. It is already established in the footbed of the tech realm, and will remain until the next great revolutionary technology comes along to change the way we store and share data.

About the Author

Lauren Stephanian is a software developer by training and an analyst for the structured notes trading desk at Bank of America Merrill Lynch. She is passionate about staying on top of the latest technologies and understanding their place in society. When she is not working, programming, or writing, she is playing tennis, traveling, or hanging out with her good friends in Manhattan or Brooklyn. You can follow her on Twitter or Medium at @lstephanian or via her website, http://lstephanian.com.