Blockchain is, in simple terms, an online record of transactions. These can be transactions of money, movements of goods and exchanges of information.

We will explore this idea in more detail and explain why it has so much potential.

What is blockchain?

A blockchain is a growing set of records, grouped into 'blocks' that are linked using cryptography.

We know it is a way of keeping records, but there are many clever ideas built on top of this. The first is about how blockchain keeps these records. Most people refer to this as 'Distributed Ledger Technology (DLT)'.

In a distributed ledger, a record of each transaction is kept in several places at once. As a result, whenever something on the blockchain is changed, everyone on the network is notified of the changes — and needs to agree to them.

This makes a blockchain extremely difficult to hack and alter records on, as it would require someone to change all the records at the same time.

"Blockchain is a growing set of records, grouped into 'blocks' that are linked using cryptography".

Why is everyone so excited about blockchain?

There are a number of key factors that make blockchain interesting.

Blockchain, in turn, is a decentralised system. This means the data resides across the network, rather than in a single place.

Why is this a good thing?

In the current centralised system, there are a number of challenges.

  • Security – If these centralised databases are breached, all the data can be exposed at once. We have seen this happen increasingly in recent times.
  • Cost – Building centralised systems is often expensive, as a company needs to provide all the digital capacity for a system to run smoothly.
  • Your data – In these centralised systems, your data is not your own and is often monetised by the networks you provide it to.
  • Transparency – How information is used, by whom and for what is a somewhat murky area today. A decentralised internet could change that.

Wasn't there something like this before?

Your bank solves this problem by checking its centralised database to see whether an asset has been spent or used more than once. Blockchain solves this without the need for a centralised database.

Who invented blockchain?

The idea of blockchain has been discussed among cryptographers since the early 1990s. But it was only with the arrival of the mysterious Satoshi Nakamoto and the creation of Bitcoin that blockchain as we know it today was created. Bitcoin is a system built on blockchain.

Also read: Who is Satoshi Nakamoto, Bitcoin's mysterious creator?

"Blockchain is an online record of transactions backed by cryptography. It is at the core of currencies such as Bitcoin and can be used to document financial transactions, the movement of goods or services and/or the exchange of information."

What makes this technology so special?

  • It is a trustless system. Today, when we buy things online, there are a number of actors or points we need to trust. Whether it is a seller, a payment system, a bank or even a website. A blockchain does not require as much trust, allowing anyone to exchange goods or services without the need for third parties.
  • No more intermediaries. Many of today's networks are controlled by intermediaries or agencies that often charge for the flow of information. On a blockchain there is no such control, which can result in lower costs and faster transactions.
  • Transparency. On a public blockchain such as Bitcoin (private blockchains also exist), anyone can view transactions, making it easier to track the flow of goods or services.
  • No one is in control. Because blockchain is a decentralised system, no single person or group can control it — changes can only happen by consensus.

What can blockchain be used for?

  • Energy – Exchanging energy between people. Potentially across borders.
  • Supply chains – Track all kinds of shipments with full transparency. Link records as items pass through various handlers.
  • Open data markets – Large open-source platforms for anonymous exchange of big data. Data is often described as the lifeblood of business on the internet.
  • Governments – Blockchain technology can be used to increase speed and visibility in the public sector.
  • Audit and regulation – Although not typically implemented, blockchain technology can be set up to act as a mirror for public transactions, making regulatory functions significantly faster and easier.
  • Insurance – Make insurance more transparent, with clearly defined conditions for payouts.
  • Internet of Things (IoT) – Connecting smart devices to the sharing economy.

Also read: The marriage of the Internet of Things and blockchain technology

The future

Blockchain began with Bitcoin, but there are no limits to where this technology can go in the future. Projects such as Ethereum, Solana and Ripple have taken blockchain's principles and pushed them in new directions. But this is only the beginning.

* Translated and edited with permission from Decrypt.