Want to understand what blockchain is, how it works and what it is and can be used for? Look no further! We’ve written this simple guide to get you up-to-speed on the basics.
What is blockchain?
Blockchain is a single, shared, record book — a decentralized database that can be shared across a network of multiple sites, geographies or institutions.
Blockchain uses a peer-to-peer network to verify and approve each transaction, and also heavy-duty encryption to maintain security.
In the finance space, for example, blockchain allows a complete record of ownership and the secure transfer of assets, such as cryptocurrency or municipal bonds, with total transparency and no central administrator – in other words, no Wall Street bank.
How does blockchain work?
Blockchain enables real-time updates to digital records. If an asset is sold from one party to the other, the record of that sale will be immediately sent to the network for verification and once approved, the new ownership is instantly apparent.
Each transaction like this on a blockchain is verified, cleared, and stored in a “block” which is linked to the preceding block, thereby creating a chain. Each block must refer to the preceding block to be valid. This structure timestamps and stores every transaction, preventing anyone from altering the ledger, and allowing all participant to independently audit and verify the veracity of the records.
What are the main benefits of blockchain?
There are few different blockchains, each providing a slightly different experience. The following benefits, however, are common to the majority of blockchains.
- Blockchain makes records transparent and accessible.
- Blockchain makes records resilient – moving away from paper records susceptible to flood and fires, and centralized electronic records susceptible to power outages, unauthorized tampering and software bugs.
- Blockchain makes records secure with cryptography which time-stamps and orders the “chain” of the record’s history that you can follow.
- As a result, blockchain builds trust in the buying and selling of goods and services.
What is the difference between blockchain and cryptocurrency?
Blockchain is not a cryptocurrency. Cryptocurrencies are digital currencies that can be created as an asset on the blockchain. Blockchain is the underlying technology that can be employed for storing all assets and records e.g. property records – not just digital currency.
How is blockchain being used today?
In finance, blockchain allows the immediate and secure transfer or trading of assets, such as cryptocurrency, shares and municipal bonds, with total transparency and no required central administrator. It is being hailed as the future of financial services infrastructure.
In real estate, blockchain aids record management. Currently, land records like deeds, oil-and-gas rights filings and mortgage documents are stored in more than 3,000 county courthouses and city halls. Blockchain cuts transaction and record-keeping costs, boosts accuracy, and minimizes the risk of fraud. The Cook County Recorder of Deeds took part in a pilot project that explored storing 5.2 million residential county property records to track real estate ownership.
Blockchain is also being used to power community microgrid networks that give communities energy independence and make them more resilient to central power outages. Participants install smart meters equipped with blockchain technology to track the energy they generate and consume.
Identity management is another major area of innovation that has advanced tremendously as a result of blockchain technology. The City of Austin, Texas is using blockchain technology to give homeless residents a unique ID that allows them to access the personal records required for critical services. With this project, the blockchain replaces lengthy paper records and gives social workers access an individual’s information while in the field.
For identity management and security, the State of Illinois launched the Birth Registry Pilot to digitize birth certificates. With this system, government agencies can verify a person's registration information at birth, then cryptographically sign data related to a person's name, date of birth, blood type, and other details. This information is then stored on the blockchain and is only accessible with consent from a legal guardian – up until the age that the person becomes a legal adult.
Finally, another exciting use case is how West Virginia employed the technology for voting, specifically offering the technology to deployed and overseas military service members and their families. The system verifies a voter’s identity using biometric tools like a thumbprint scan, then they vote using a mobile device and their vote is recorded on the blockchain. What this means is that voters can verify that their vote was recorded by looking at the record on the blockchain, voters can vote from anywhere in the world as along as they have an Internet connection, and there’s no way for an election official to miscount or misunderstand their vote.