If you’ve heard of cryptocurrencies, you’ll have heard of blockchain technology. For most people, these terms mean very little and are simply dismissed as technical jargon which doesn’t concern them. However, the technology is revolutionary and is not too difficult to understand once you know the basics. There are a number of in-depth online guides available to learn more but, for those that don’t know, a cryptocurrency is a currency which is created and used online. One of the most popular, and therefore most well-known among novices, types of cryptocurrency is Bitcoin. This is a decentralised currency, which means it is not controlled by any authority or government. Although the currency has been historically associated with a number of scandals, its purpose is to make transactions around the world, faster, easier and more secure but it couldn’t operate without blockchain technology.
The history of financial transactions
To understand blockchain technology and cryptocurrencies, it’s important to be aware of how money has been transferred in the past. Until recently, it has always been necessary for an intermediary, or “middleman”, such a bank or government to ensure that transactions are being completed securely and reliably. The middleman role includes keeping records of transactions to help build trust. Blockchain technology makes it possible to remove the middleman from digital transactions. So, while cryptocurrencies like Bitcoin are a very exciting prospect it’s actually the technology behind them which is revolutionary.
What is blockchain technology?
To put it simply, a blockchain is a distributed database. This means that all of the storage devices using the database are not connect by one common processor. Traditionally, a bank, government or accountants would be the central administrator for digital transactions but blockchain technology relies upon network of replica databases. These databases are synchronised over the internet and are accessible to anyone who is in the network. Networks can be private, with access strictly limited to those who have the password, or public, like the internet, and visible around the world.
Cryptocurrencies use blockchain technology to group together transactions into a protected block when they are carried out. The block is distributed among the whole network so miners can access it. Miners are people who use their computer processing power to solve complex mathematical problems and validate the block. As soon as a transaction is made miners compete to validate the block in order to receive a reward, for Bitcoin miners in the Bitcoin block this reward comes in the form of the cryptocurrency. Mining has become extremely popular in recent years as more people learn that they can make money by running software on their computer, this has dramatically increased global mining power consumption.
Once the transactions have been validated, the block is timestamped and added to a chain of other blocks. When new blocks are created, they are also linked to the chain. The idea behind this blockchain is that it will show all of the transactions made using a particular cryptocurrency, helping the digital transactions to remain secure and trusted without the use of a middleman. The chain will be continually updated, each and every time a transaction is made.
The main benefit of blockchain technology is that it’s highly secure. Timestamping transactions making them visible means that the network is managed while still remaining decentralised.
How else can it be used?
There are a number of popular uses for Bitcoin at the moment, including placing bets in online casinos, transferring money around the world and even making online purchases. Despite Bitcoin only becoming available in 2008, the industries currently using the cryptocurrency are advancing rapidly; the technology responsible for Bitcoin casinos possible has progressed significantly throughout its short history. It’s predicted that Bitcoin will be used far more widely in the future, with public transport and retail being some of the most likely industries to adopt the currency, and more companies are adopting the technology every day.
As there are so many uses for Bitcoin, there are also many uses for the blockchain technology behind the cryptocurrency. The technology has huge potential to for any kind record-keeping, such as keeping medical records or tracking how taxpayer’s money is spent.
Blockchain technology has been trialled by Metrobank, who are using the technology to make transactions through contactless payments much faster. Potentially, blockchain technology could make it possible for billions of contactless card payments to be made every day. As this trail was highly successful, Metrobank aim to begin allowing blockchain card payments in 2017.
It is also being used in Honduras, Central America, to manage land registries. A blockchain is used to keep a secure record of land titles, reducing the threat of corrupt officials making changes to the land titles without permission. Other countries, including northern Ghana and the Isle of Man are following this lead and establishing their own blockchain records for land and company registration.
In the future, blockchain technology is likely to be used for to improve the efficiency of a number of everyday processes, from voting to identifying yourself online.