Blockchain is best known as the technology that underpins Bitcoin, but it is so much more than that. Its uses are endless and in the very near future, we can expect all trade to occur on a blockchain, as well as more abstract uses, such as electoral voting.
Over the last few years, if you’re Internet-savvy, you may be aware of blockchains. If you do, you probably know it as the technology that underpins Bitcoin. If you know more than that, you’re in a very small group of people who actually understand what it does and how it’s capable of so much more.
Let’s take a step back. For those who don’t know, Bitcoin is a “cryptocurrency” which is a currency that uses cryptography to handle transactions. Bitcoin is not backed by any central government as most currencies are today (the dollar is backed by the Federal Reserve and so on) and thus, is not subject to the purview of government. It is in this vein that many people have perceptions of Bitcoin being used for illicit activities. And while it does afford a level of anonymity if one so chooses, its uses go far beyond that and the illicit usage is only going to represent an increasingly small percentage of Bitcoin’s users as Bitcoin and other cryptocurrencies become more prevalent.
The reason that Bitcoin can work without the backing of a central institution like the Bank of England is what is known as triple-entry accounting, made possible by the blockchain. In modern accounting, we use double-entry accounting, which means that for every debit, there has to be a credit somewhere else. This system has been in use since the 1400s and provides error-checking, but doesn’t stop people from falsifying records (think of “cooking the books” a la Enron). The “third entry” in triple-entry accounting is a cryptographically-secure public record of every transaction so that these transactions can be verified. This is the blockchain. When you make a transaction using Bitcoin, a record is made in the blockchain and now everyone knows that one wallet paid out some Bitcoins to another wallet and so everyone agrees how many Bitcoins are in each wallet. Continue reading “Blockchain: A revolution occurring right in front of our eyes”