Blockchain technology is used to create the networks that support cryptocurrencies like Bitcoin, but that is just one basic application. Forget about cryptocurrencies, just think about the movement of data – the transfer and storage of information.
This is much like the early days of the Internet where e-mail was the primary goal.
Blockchain technology is taking cloud-computing one stride further
It will be possible to run programs that a given device doesn’t have the computing power to handle by harnessing it from a network. These distributed applications (Dapps) will also provide added security to many of the things we utilize the Internet most for like photos, videos, and conversations. When we use one website or app for these things, we risk losing them forever.
If that host were to disappear, so would those memories.
Things like identity documents or contracts for assets will be able to be held on a blockchain to provide an indisputable record of their existence that isn’t controlled by any a private company or any single entity.
Remember “the Telephone game” kids play?
Players form a line, and the first player whispers a message into the ear of the second player, the second player then whispers what they heard to the third player, and this goes on until there are no players left.
The fun, of course, is at the end, when the last person says the message out loud and it is almost never the same as the original.
Imagine that an elementary school teacher is trying to keep track of something, so they create an incentive to maintain the original message. The game would certainly lose the silly part, but players would end up with a reward. And from an information standpoint, the important part is that they would all have been given the exact same input message to remember.
Now imagine that every day, the previous message was condensed into a code word and the game was played with a new message and the code word tacked on.
So each day a new message would be passed and then abbreviated right along with all previous code words.
This displays one of the primary benefits of a blockchain, where any attempt to alter the history of one transaction would alter the data of every single block, or in this case the code word.
Making this abbreviation code word is what computers are doing when they hash the data of the previous block’s transactions to be included in the next block. The incentive shows the basic idea that it is more valuable for miners to maintain the integrity of the network than try to take advantage of it.
But this would quickly get very difficult for anyone to remember so many code words. What about using simple numbers instead of messages? Let’s suppose that the teacher wants the students to maintain a running tally of something.
Now we can make up The Blockchain Game
Imagine every student has a tablet.
There’s no need for physical line anymore, and rewards are limited to one per day. Each day the teacher broadcasts a number out to their student’s tablets. Students are able to add that new value to the previous total if they want a chance at the reward. Simple addition isn’t that hard for the students, so the incentive goes to whoever gets the correct answer to the new total first.
If anyone were to input the wrong answer in order to receive the reward, the rest of the class would dispute their answer.
This new total is updated across all tablets, and the next day a new addition problem will be sent out.
So good so far..
This analogy is far from perfect but eases into many of the buzzwords associated with discussing blockchain technology. The students who attempt to win the reward are miners. The whole group of students would be the network, each one of them a node. The simple addition of the total to the new number represents the algorithms used to create the Proof of Work system used in Bitcoin and many other cryptocurrencies. In theory, this makes it more valuable to the student to act appropriately for the reward, rather than input something wrong.
(Proof of Work protocol was originally created to cut down on spam emails in the early days of the internet, where it would end up costing the spammer more time and energy to make the negative impact than it was worth. The second most common is Proof of Stake)
In this classroom the correct blocks are small, containing just the daily transaction, but the important concept is that the running total or ledger, is decentralized amongst the students. The continuous nature of the transactions must be maintained to uphold all previous transactions. Agreeing on the total written on the board each day would be consensus.
There may be one student that is always the fastest at the math problem, but if they were to get sick, there needs to be a replacement. There may be several students that always participate for the reward, but if the message is only kept to them, they could collude to break consensus and broadcast whatever message they want.
(Consensus algorithms prevent these digital numbers that represent money from being spent more than once – double spending problem – but also force a bunch of computing power and energy to be spent for no reward)
Lets introduce computers and we have the blockchain
When we replace the participants here with computers, these messages or numbers can represent anything from value (Bitcoin) to an entire operating system (Ethereum) that runs on a network of computers instead of the physical capacity of one. The processes become automated, incredibly more complex, and can be connected to anywhere with Internet access.
These more capable messages are already being used to represent assets like real estate in a form called a smart contract and used as building blocks for distributed applications (Dapps).
Dapps and risk
Working Dapps have to combine smart contracts to remove the middleman in services like Uber and Airbnb so that the service provider and customer pay each other directly, but without any risk, because the transaction is controlled by an automated computer contract.
Other projects are working on moving things like medical information on a blockchain to maintain a universal account of an individual’s health history or medications. This would help new care providers more quickly provide the best treatment to an individual no matter where they are.
Another project aims to use a blockchain network to spread Internet to areas without Internet service.
There will certainly be a tipping point of greater adoption for this technology because of its ability to reduce the friction caused by a middleman in any transaction.
The curious part is if it will be through its initial breakthrough with Bitcoin, or with a further development of some kind.