Blockchain is not bitcoin, but they do go together. In fact, blockchain is how bitcoin exists in the first place. It’s a foundational technology which could have a hand in transforming all kinds of industries and business.
Let’s start at the beginning. What is blockchain? What is its purpose? How is it currently being used? And how could it be used in the future?
Blockchain definition and analogy
At a base level, Merriam-Webster defines blockchain as:
A digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network
The keywords of that definition are: decentralized and publicly accessible.
Decentralized refers to the open nature of the blockchain technology. Rather than one company or person needing to sign off on how the technology is used, it can be set up to work anywhere — simply adhering to a set of protocols. And blockchain transactions are publicly accessible to build trust through transparency.
A blockchain analogy
Imagine the world is one giant football stadium where everyone is gathered. The scoreboard shows all the transactions happening on the field. It ticks up for one team when they score and adds to their collection of points.
Everyone in the stands trusts the scoreboard (or ledger) as accurate and that the team leading has the right amount of points because everyone in the stands is witness to what’s happening on the gridiron. They can verify that everyone is playing by the rules.
Blockchain works in the same manner, recording all transactions associated with a digital item. Everyone can see the ledger to know where an item came from, where it went and its use.
Here’s the deal with bitcoin and digital currencies
Blockchain is the basis of bitcoin and other digital currencies for a few reasons; one of the biggest being the transparency and trust it provides.
People love their money. It’s asking a lot to have them send it through a closed tunnel, only to hope it comes out the other side, reaching the intended person and in the condition they expected. A public ledger helps alleviate distrust, especially when it comes to currency.
The other aspect of blockchain is its ability to mark digital items as unique. (The method for how this happens is for another time, but Reuters has a graphic that explains the basics.)
Since digital items have been infinitely reproducible, it wouldn’t really work to have a currency that could be copied by anyone; there’s no value in that.
Each bitcoin can only be used once, transferred from one account to another. The same bitcoin cannot be spent over and over by the same person. In this way blockchain combines the conveniences of digital, with the properties of something physical.
Real world things using blockchain
Forbes took a look at some of the real-world uses of blockchain in place now, not just pipe dreams. Some examples:
- cryptocurrency-based vouchers used by the U.N.'s food program for Syrian refugees
- bankless access to money in Africa
- preventing voter fraud
- improved health care
More likely than not, blockchain technology will seep into the everyday products and services with few people noticing. On the surface, banking or media might look the same using blockchain, but could be getting a technical boost behind the scenes.
One area you might notice someday, however, is the ability to vote in elections from your phone without worrying about the results. Verifiable voting leads to what we can expect down the road.
Future items that may use blockchain
Just as digital currency would be susceptible to reproduction, producers of media and content have faced problems with their intellectual property being endlessly copied without their permission. Remember the days of ripping CDs and sharing music files with friends?
Music, books or published articles just like this one could all benefit from being unique and traceable. An artist, for example, could produce a limited edition digital album and not worry about it losing its rare value.
Video games could incorporate unique downloadable content. Digital books could go back to valuing first-run editions. All those items could still come in a convenient digital form so they would be playable and useable anywhere.
MIT Technology Review offers a fascinating look at what portends for blockchain. The long article outlines why the technology deserves our trust and breaks down its complexities. Among future possibilities are not just any singular item, but the ability to link multiple actions together in something called smart contracts.
From the article is this glimpse at smart contracts. "As software-based items, these new digital assets can be given certain 'If X, then Y' properties. In other words, money can become programmable. For example, you could pay to hire an electric vehicle using digital tokens that also serve to activate or disable its engine, thus fulfilling the encoded terms of a smart contract."
It's a example of how blockchain will enable analog and digital items to co-exist closer than ever before. The future, powered by blockchain, will start to become exponentially more complex, but hopefully safer and more transparent along the way.