What is a Blockchain? Origin, Definition, and Present Trend.
With the advent of the first fine of Ripple Labs (creator of XRP) in 2015 by the US Financial Crimes Enforcement Network for violating laws regarding money laundering, it is safe to say that cryptocurrencies are now mainstream. We take a look at Blockchains- its origin and definition.
2009 saw the first cryptocurrency launch, namely Bitcoin. Although it’s taken the industry a long time to acknowledge it, now everyone is talking about blockchain technology. It’s gone so far that the European Parliament has voted in favour of a hands-off approach towards regulation of blockchain tech. Sweden is also in the midst of trialling a new land registry that uses blockchain.
So what is blockchain? And why is there such a massive interest in it?
A blockchain is essentially a distributed database that has a list of records which constantly grow. At its heart is a public ledger that notes all transactions that have ever been done, protecting them from any revision or tampering. Anyone can access these transactions in real time on the official blockchain site and evaluate the basic stats of the system (time between blocks, number of blocks created, mining costs, costs per transaction and even the electricity used to mine them).
The digital ledger is secured by cryptography and it’s universally accepted that tampering with it is impossible. Old transactions are forever preserved and new ones are added without the option of ever getting rid of them.
The blockchain is sometimes also referred to as a mutual distributed ledger (MDL) which means it’s an independent and permanent database which coexists in multiple locations and shared by a community. MDLs can be traced back all the way to 1976 to the Diffie-Helman research paper titled “New Directions In Cryptography”. However, for a very long time it was regarded to be too complicated. So, it took a simpler implementation of the blockchain in Bitcoin to get people interested again.
When the 9-page white paper by the anonymous scientist who goes by the name Satoshi Nakamoto was published in 2008, the blockchain was thrown back into the public eye. The whitepaper discusses and outlines in detail how to create a completely novel cryptocurrency based on highly sophisticated mathematical formulas and a resilient distributed architecture.
The paper describes how bitcoin can be used to send payments between two willing parties without having to go through a third-party financial body. Each transaction is then stored in the blockchain ledger, the last block being linked to preceding ones using a digital signature. In order to ensure trust in the ledger, network participants then ran complex algorithms to check the authenticity of those signatures, only then adding the transactions to the blockchain.
One drawback of blockchains is that they require constant computational power in many different locations due to its distributed nature. According to Michael Mainelli, executive chairman of Z/Yen Bitcoin consumes roughly half the energy consumption of Ireland.
The blockchain technology allows strangers who have no trust in each other to exchange currency online. Sometimes using a third party in financial services can cause mistrust, so if the registry is not owned by a central third party, but on multiple machines and everyone has copies, it has resilience and it’s also easy to look up transactions. Impossible to alter or edit, the data is there permanently on record. This would be ideal for both auditors as well as financial regulators.
In 2014 “Blockchain 2.0” was a word used in the database field. Later that year eight funded projects took place in order to develop blockchain 2.0 technology. Currently, many different agencies in the music industry are also testing models that use this technology to manage copyright and royalty collection globally.
It is clear that blockchain technologies have a far wider potential than simply sticking to financial services. An answer to issues of trust, it is invaluable for date-stamping, establishing identity, geo-stamping, managing provenance of assets, etc. Therefore it is a great audit-trail for anything, not just cryptocurrency. Much like the birth of the database in the 70s, this isn’t simply a system. A lot of industries will begin to see that there are benefits far beyond what is the Bitcoin trend.
We may be in a transitional period presently, blockchain may become the norm for data relatively soon. Only time will tell.
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