Bitcoin? Blockchain? I’m already lost!
When the last page is written on the bizarre Bitcoin story, many people believe the conclusion will be that the world was changed… but changed by the Blockchain, not by Bitcoin!
Blockchain promises a way for people to record transactions, for example, currency, information, deals or anything else that can be digital, using a ledger that doesn’t need to have a trusted central body to oversee it.
That could enable significant changes to the way that information and business happens and, more broadly, to the way that information and identity are managed.
What are you talking about? Bitcoin? Blockchain? I’m already lost.
OK, let’s rewind to the beginning…
Bitcoin was invented in 2009 in a mysterious story that geeks love. It’s probably best understood as a currency, though some sticklers would call it an asset instead.
In many ways there’s nothing new about digital currencies like this – think Tesco points or Air Miles. We’re all very used to vouchers that are like currencies but don’t have the Queens head on them.
But Bitcoin is different because a key part of the scheme is a clever ledger, called the Blockchain.
The Blockchain has special rules and maths embedded in it to allow all the users to track the deals without relying on a central authority.
That’s right… no one is in charge!
Obviously, if you want to know how many Air Miles you’ve got, you phone the Avios helpline or check your app; or if something goes wrong you call their complaints department. They are the central authority who oversee the system and ensure it’s working smoothly.
With Bitcoin transactions (or anything else based on Blockchain) every user has access to a perfect version of the ledger so you don’t need to rely on a central body at all. The ledger is secure and reliable.
Now of course nothing is perfect, perhaps there are flaws in Blockchain that have not yet been discovered, or new kinds of maths or computers will make it hackable. You could distort the system by taking control of huge numbers of computers but it just isn’t practical. To all intents and purposes, the Blockchain is secure and reliable – in 10 years of Bitcoin there have been no interruptions, corruptions or errors.
And now there are a slew of other cryptocurrencies like Bitcoin. Arguably some of them are technically superior to Bitcoin but none of them yet has the foothold that Bitcoin does. Only time will tell which will prove to have long-term value as a currency (or asset, if you prefer!).
However, all of these cryptocurrencies run on the same kind of rails – Blockchain! Blockchains are the ledgers for all of them.
Blockchained to the rhythm
Very simply, the Blockchain is a set of rules and codes to enable a database or ledger to be securely copied and synchronised on millions of computers all over the world.
If you want to record something in the Blockchain database then you change one copy and this change gets replicated in all the copies. There are extremely clever rules that govern this process to make sure that only valid changes get accepted onto the Blockchain and replicated.
And once a change has become fact in the database then it’s impossible to undo it. If you want to check the data then you can do it on any of the copies, and if there were any doubts about one copy then it’s easy to see if it matches the others.
It doesn’t matter if any of the computers has a problem because there are so many others still running the system keeps going. It’s effectively impossible to tamper with the database because you would have to simultaneously tamper with millions of copies.
Critically, none of these databases is the master copy. They are all synchronized copies of the whole database.
Bitcoin transactions are recorded in a Blockchain ledger which ensures that there is an unequivocal record of buys and sells. There is no central bank, organisation, or government overseeing the system.
Now nothing is entirely secure, but there is no practical means to hack the Blockchain, so for the purposes of this Briefing we’ll assume it’s secure and un-hackable – because it probably is.
So why does Blockchain matter to business?
Well Blockchain could matter to business because it could allow disparate companies and people to work together even if they don’t know each other, or even trust each other. And it could allow this without the need for a central body to oversee the initiative.
And this is just the start, because Blockchains can go further and can store agreements in the form of Smart Contracts which could allow automation of lots of transactions that are currently manual and slow.
To read more about practical examples of Blockchains, Smart Contracts, and how this will create new opportunities for ambitious mid-market business, read our next briefing.
For more non-technical advice, visit our Technology Roadmap for Growth Knowledge Centre, which includes all content related to this topic.