Blockchain technology cuts through the hurdles to simplify everyone’s lives. Trust and transparency are two of the most important components of internet security. But how do websites and individuals establish parameters to ensure a modicum of trust in transactions? The technology underpinning Bitcoin, the cryptocurrency created by a group of programmers in 2009 that hit an all-time high last week, is one of the leading open-source platforms governing these transactions.
Known as blockchain technology, the system operates according to a simple logic. Since Bitcoin i traded on a decentralised (and anonymous) network, there must be certain safeguards to ensure that no single company or individual is manipulating currency rates. The currency is traded between entities on a one-to-one basis, so what steps are taken to verify that accounts are not double spending or otherwise manipulating rates?
Using the principle of peer-to-peer networking (think of how BitTorrent shares files through a decentralised network of computers around the world) blockchain technology creates an unalterable digital ledger that ensures Bitcoin trading is above board.
While it might sound technical, the premise is straightforward. When someone requests a transaction, let’s say to buy Bitcoins, their request is sent to a network composed of several computers, known as nodes. This network then validates the transaction using established algorithms. Once the transaction is verified, it is combined with other transactions that form a block of data. This block is then added to existing blocks to form a digital ledger. These blocks of data are chained together and are then considered to be permanent and unalterable. Given the sheer size of the data collected in these digital ledgers, no single computer has the power to crack them or alter their contents.
Additionally, all the data in the block is visible to the public and thus transparent. While blockchain technology has an obvious application in the trading of cryptocurrency, its premise can be used across the internet.
Any form of data from documents to contracts can be exchanged using a block chain. With Bitcoin’s surprising comeback on currency markets in recent months, there is new interest in using blockchain technology for other applications across the web.
Start ups are using blockchain for everything from the creation of digital contracts to new ways of securing data uploaded to the cloud. Any complex transaction that requires a level of trust and transparency can benefit from this technology.
Already a couple in Singapore used blockchain systems to register their marriage certificate. The Nasdaq Stock Market, borrowing a page from the Bitcoin playbook, uses blockchain to facilitate stock trades of private companies.
For the time being, blockchain provides the coveted seal of trust and transparency in the internet environment. As more aspect of our lives are uploaded to the net, its possibilities are endless.