June 26, 2019
Blockchain: What is it?
New buzzwords and phrases are always circulating in the business world; “Big Data,” “The Cloud,” “Digital Transformation” are prominent among others. However, one has reigned supreme and has been the topic of many boardroom conversations; “The Blockchain.” Unless you are adequately informed, the blockchain can be a confusing concept that the average person may have difficulty understanding. Is blockchain a cryptocurrency? Is there one huge blockchain, like the internet? How is blockchain applicable to my line of work? In this article, we will provide a brief overview of blockchain and some of the concepts associated with it in order to give some clarity.
Blockchain is a way of storing data using chains of blocks secured with cryptography. It isn’t some magical technology that exists in the ether. There isn’t one blockchain that people can tap into. Blockchain technology is used to make storing data more secure and decentralized. How does blockchain accomplish this?
To understand blockchain, it is helpful to know where it came from and how it rose to prominence. The idea was created by Stuart Haber and W. Scott Stornetta in 1991. Its function was to find a way to document timestamps without it being tampered with. This concept was further worked on by Satoshi Nakamoto in 2008. He improved the blockchain by adding the hash-like sequences to further bolster security and used blockchain for the base of his cryptocurrency Bitcoin. So, blockchain is not a cryptocurrency, but rather it is the system that cryptocurrency uses to record its transactions.
Whenever a new piece of data is stored in the blockchain, a “block” is created. This block contains the latest data entered, the block’s “hash,” and the hash data of another block. A hash is like a fingerprint in that it identifies a block and its contents, and that it is always unique. If the data inside the block is at any point altered, the hash will also change, signaling to the user that the data has changed. This function of a block is great for making sure that data cannot be altered. The reason that the system is a chain of blocks is that each block contains the hash of the previous block. This is to prevent tampering with the blocks further. For example, in a four-block chain, if the second block is tampered with, blocks three and four will become invalid as the hash data has changed for block two.
With computers being as fast as they are these days, what is to stop someone from calculating the hash data for every invalidated block and making them valid? Blockchain uses something called “proof-of-work” to counteract this tampering. Proof-of-work is used to slow down the process of making changes in the blockchain. For example, Bitcoin’s blockchain takes ten minutes to calculate the new proof-of-work for a block, giving time to the users of the blockchain to notice the tampering.
Security and Decentralization
Hash data and proof-of-work help significantly in securing the network, however blockchain’s “distributed ledger” is primarily how blockchain stays so secure. By being a peer-to-peer (P2P) network, anyone who joins the network receives a copy of the entire blockchain. This decentralizes the blockchain, as no one person oversees it. If one person creates a new block in the chain, everyone’s copy of the blockchain gets updated with that new block. For someone to tamper with a block in the chain, they would have to:
- Tamper with every block in the chain, as the hash data of each subsequent block will change
- Calculate the proof of work of every block that’s hash data has been changed
- Gain more than 50% of the P2P network to have a majority
Once a consensus is agreed upon, only then can a tampered block be accepted. This is why blockchain is so secure.
How does blockchain affect you?
Like we discussed previously, there is no one blockchain. Instead, blockchain technology can be applied to many lines of business. Medical records, land titles, financial transactions, etc., can all be stored using blockchain technology. Any company that stores data can use blockchain to secure and tamper-proof their data.
If the network is P2P, then can’t everyone see my data? It all depends on the type of blockchain that is created. There are multiple types of blockchain, such as public, private, and hybrid networks. Public networks can be accessed by anyone and can be joined by everyone. Private networks are made for a specific group of individuals, such as a specific company. Hybrid networks are where things get interesting. Let’s say that the government uses blockchain to store land records. The blockchain could be set up so that someone’s personal information attached to the land record can’t be seen by the public, but everyone can see that an individual person owns the land. Maybe, the government will allow all people to access the data but reserves the right to update the data. Perhaps the blockchain allows for financial transactions to be updated as a new transaction takes place, but only the ones participating in the transaction can view it. The possibilities are endless with blockchain.
Blockchain is a promising technology that seeks to revolutionize the way businesses and individuals record data. However, with recent hacks such as the 51% Ethereum Classic hack, will blockchain really be as secure as experts say? Only time will tell. With a rapidly changing society that is becoming more and more dependent on technology, maybe blockchain will be the future. Hackers are becoming craftier and see the impenetrable wall of blockchain as a challenge. One thing is for sure; you won’t stop hearing about blockchain anytime soon.
DISCLAIMER: Hunter Taubman Fischer & Li LLC assumes no responsibility for the accuracy or timeliness of any information provided herein. The information contained herein is for informational purposes only and is not legal advice or a substitute for legal counsel. The information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.