What is a blockchain and what does it do?
And it’s everywhere. All of a sudden, everything is about blockchains. Apparently they’ll revolutionise banking, prevent the next financial crisis and change the way we vote and buy property.
No, they’re not a series of asteroids set to wipe out a large chunk of the human race. They’re peer-to-peer digital databases, originally designed by human Schroedinger’s cat Satoshi Nakamoto (who – until observed – may or may not exist) as the technology underpinning his/her/its Bitcoin cryptocurrency.
Blockchains are public ledgers of transactions – their initial purpose having been to record every single payment made with Bitcoin, giving each transaction a unique serial number entered into the blockchain in chronological order. Think of it as a handcuffed conga line; a highly visible and immutable record of when each transaction was made, who made it, and to whom.
“Think of it as a handcuffed conga line; a highly visible record of when each transaction was made, who made it, and to whom.”
Every computer (or node) that joins the Bitcoin network automatically downloads a copy of the blockchain. This is what makes blockchains a “distributed database” – they are not stored on a central server, but on every computer on the network (hence peer-to-peer) – and it’s also what makes the technology so important and potentially disruptive.
As a decentralised, democratic and verifiable way of securely recording payments, the need for trusted third parties such as banks to broker payments is theoretically eliminated. So part of the appeal is that financial services could soon become available to people who have never had access to a bank. Even banks themselves are frantically researching blockchain, believing the tech has the potential to make their transactions quicker and far more secure.
But it doesn’t stop at finance. Non-partisan organisation Follow My Vote is using blockchain technology to build a secure online voting platform that allows for greater election transparency and mathematical proof that results are accurate. A firm called Peertracks is gearing up to sell music fans equity in bands they discover – essentially crowdfunding musicians with a promise of return on investment. Other companies are developing ways to use blockchains to keep records (e.g. of real estate) for governments and businesses.
Blockchain seems to have become applicable to just about anything, and it’s worth noting that the technology’s most appealing components are ones deeply ingrained in the DNA of freemarket: complete transparency, total security, and the use of P2P to decentralise financial services.