WHAT IS BLOCKCHAIN?
Blockchain technology is a new way of accounting that eliminates the need for trusted third parties. It is a breakthrough on the same magnitude as the invention of double-entry accounting.
Blockchain technology uses strong cryptography, peer-to-peer networking, and byzantine fault tolerance to make a shared database (called a blockchain) that is extremely difficult to falsify. All communication protocols are constructed in such a way that the various parties cannot impersonate each other or plausibly deny any action that they have taken. Honesty is rewarded and dishonesty is punished.
All updates to the shared database are digitally signed by the updating party and pass through whatever authentication checks are implemented for the specific use case.
For example, in Bitcoin, the first and most well known blockchain project, the database is used entirely to maintain a triple-entry balance sheet. The authentication check is simply “Does the signer of this transaction have enough in their balance to transfer the intended amount?”
In Ethereum, another blockchain project, the database is generic and can be used to manage many different systems, essentially anything you might use a computer for. Currently Ethereum is used to managed hundreds of independent balance sheets, dozens of supply chains, and digital asset exchanges. Collectively the programs that implement these use cases are called “smart contracts”.
WHY WAS BLOCKCHAIN CREATED?
Bitcoin, the first blockchain project, was created by an anonymous person or group “Satoshi Nakamoto” to address conflicts of interest in the banking sector. The first block in the Bitcoin blockchain has a headline from the newspaper written in it “The Times 03/Jan/2009: Chancellor on brink of second bailout for banks”. https://blockchair.com/bitcoin/block/0 Bitcoin is open source software, meaning anyone can copy and modify (“fork”) it to start their own blockchain. This means you can create your own blockchain system today, without reinventing the wheel.
IF BLOCKCHAIN IS SO SECURE, WHY DO I READ ABOUT IT GETTING HACKED?
The important distinction here is between the blockchain itself, which has a secure design, the implementation of the blockchain, and the surrounding ecosystem. To obtain Bitcoin, for example, many people create an account on an exchange, deposit their local currency, and trade it for cryptocurrency (currency that runs on a blockchain). Many people leave their funds on these exchanges, which has the same counter-party risks that banks create. If they withdraw their funds onto a wallet (software for managing cryptocurrency) that they control, this wallet may also have vulnerabilities that hackers can exploit. Likewise, the source code of any software may implement a secure design in an insecure way. When we say that blockchain is secure, we mean the design is secure. The implementations and wallets and exchanges all vary in the degree of security they offer.
The most secure way to store cryptocurrency is on a hardware wallet. Blockchain also supports more complex security models, such as requiring 3 of 5 parties to sign before funds can move. When properly secured, cryptocurrency is more secure than money stored in a bank.
HOW CAN I USE BLOCKCHAIN IN MY BUSINESS?
In the tradeoff between security and convenience, blockchain heavily favors security. Blockchain is unlikely to speed up your system unless trust is a significant source of friction. It can, however, increase the security of many systems dramatically. This space is very new and there are many experiments, most of which will fail, which is necessary for the ecosystem to mature. It is important to protect your business by limiting exposure to failures while also taking advantage of real innovation.
Blockchain technology is a major evolution in technology that nobody can afford to ignore. It will take time to mature, which gives us some time to understand and strategize proactively. Make an investment in your future by educating yourself about blockchain.