Life is bombarded by news reports, colleagues, and friends talking about how blockchain technology is changing the world. But while many talk about blockchain, very few truly understand what it is and why it will revolutionize practically every industry imaginable. Thankfully, by the end of this article, you will be one of the few who understands this traditional “tech buzz word.”
I can throw technical terms at you to describe how blockchain functions, including Markle trees, distributed ledgers, and cryptographic hashes. However, for simplicity’s sake, I will use a simple analogy to help individuals who are not well-versed in computer science understand blockchain and realize its significance.
Imagine that you are a congressman in government who is involved in creating and passing laws. Whenever any single congressman would like to pass a new bill, it must be voted on by every other congressman in order to make it official. Additionally, whenever a new bill is passed, every congressman is alerted and given a list of the new bills that are passed.
Now, why is this important? If a congressman wanted to pass a bill himself, he couldn’t. If he added a new law to his own copy of the bills, then it would not be valid; everyone else would have a correct copy of successfully passed bills which would contradict the congressman’s altered version.
Blockchain works in a similar manner. The blockchain is an imaginary data structure that is composed of “packets” or “blocks” of information. In the case of the analogy, these blocks are represented by the bills. To give a specific example to illustrate blockchain technology, I will use Bitcoin, which is a decentralized cryptocurrency or virtual currency. In the case of Bitcoin, blockchain’s “packets” of information are ledgers of transactions between individuals.
The Bitcoin network, parallel to the congressmen, gives every user copies of transactions that are represented by additional “blocks” of information. Whenever one transaction is made, everyone else who has Bitcoin is alerted of this change and a new block is added to the chain. Relating back to the analogy, this parallels the congressmen receiving updated lists of passed bills. However, while the congressmen would vote on a bill in order to make it into law, those part of the Bitcoin network use the computing power of their systems as “votes” in order to verify a transaction and make it official.
If the minimum amount of computing power required to validate the transaction is reached, the Bitcoin network updates all individuals’ records of previous legitimate transactions. If the minimum amount of “computing power” is not reached, the network does not recognize that the transaction occurred. Drawing back to the previous analogy, computing power verifying transactions can be compared to the minimum number of congressional votes needed to pass a bill. This decentralized system makes Bitcoin much safer from fraud because all transactions must be “voted” on before being labelled as legitimate. If somebody were to attempt to fake a transaction, just like a congressman wanting to create his or her own law without getting the approval of his colleagues, it would be flagged as inconsistent from the network’s record of transactions and made null.
So why do we care about this more reliable way of transferring information?
Because our world is dependent on trust.
The American dollar is considered the world’s standard because individuals believe in its stability. Millions of people buy products from Amazon because they are certain that they will get them the next day. Trust allows this all to happen.
This is why blockchain technology will not only revolutionize the financial sector, but also heavily impact the hospitality, airline, and restaurant industries, as well as any industry whose lifeblood is intellectual property.
Because of blockchain’s ingenious structure, it would allow for the creation of a unique digital ID’s that would make traveling much safer for guests and identity fraud nearly impossible. In the restaurant industry, food can be tracked throughout its entire supply chain, from the moment a carrot leaves a farm up until the moment it reaches the restaurant. This improved monitoring would increase quality and safety of food for consumers. Most importantly, while information and patents are becoming ever more important in the entertainment, art, and manufacturing industry, keeping one’s innovations safe from theft is a necessity. With blockchain technology, anyone who holds the rights to a patent can undeniably keep his or her claim.
We can only wait and see just how blockchain takes hold in these various industries and whether this once “tech buzz word” will become as commonplace as internet or telephone.