Some cryptocurrencies, like Bitcoin and Ethereum, have multiplied in value thousands of times over, often over very short periods of time, making and breaking the fortunes of investors all over the world and even going as far as to destabilise entire economies (looking at you, El Salvador). What you may not know, however, is that in order to function at such a remarkable level, cryptocurrency is completely dependent on a specialised type of encrypted ledger technology known as blockchain. This brings us to our topic of the day – blockchain, the cryptographic technology behind the secure transactions of Bitcoin – is it a thing or not? The short answer is a resounding yes, but as always – with a catch.
Although the idea behind blockchain has been floating around in research papers and theoretical dissertations since the 1980’s, it has only been successfully implemented as recently as 2008 by Satoshi Nakamoto, the mysterious entity behind the creation of Bitcoin. It is now being used to complete secure, peer-to-peer, online transactions, without having to involve third parties such as banks, governments, apps, or online wallets. Its popularity has increased dramatically in recent years, not only due to the growing international need to be independent of centralized banks and corporations, but also because cryptocurrencies are protected by complex encryption algorithms that essentially make them immune to counterfeiting.
A blockchain can best be described as a public registry – essentially a digital record or database of transactions made online. True to its name, a blockchain is an ever-growing chain of interlinked records (or blocks) that contain encrypted information. Blocks in the chain contain three elements – the data, the hash (a unique identity code) and the hash of the previous block. A block’s hash is connected to its content, meaning that the hash will change if its internal data is tampered with, thereby invalidating all the subsequent blocks in the chain that rely on that hash.
Each block is timestamped and is connected to every previous block, meaning that the information inside a block cannot be changed without also changing every upcoming block. These connections between the blocks thus verify and reinforce each other, ensuring that the data in a blockchain is almost impossible to alter or tamper with. It is this uniquely secure property of the interlinked structure of a blockchain that guarantees fidelity in any Bitcoin transaction, something that is desperately needed in many other facets of our modern lives.
Trust is one of the main pillars of a flourishing economy. By lowering uncertainty between two entities completing a transaction or exchanging value, blockchain technology will be able to completely transform the way we do business. The blockchain can store much more than just Bitcoin. Many other assets, such as a history of custodianship, titles of ownership, IP addresses or locations, and even entire digital contracts could be stored and secured by the blockchain. By implementing this technology, we could eliminate the need for the scores of profiles, reviews and ratings that we have scattered over as many websites just to ensure that we do not get robbed or cheated by a stranger in an online transaction. The blockchain will deliver cryptographic proof that the person or company you are dealing with is indeed who they say they are and that they have successfully and honestly completed similar transactions in the past. Furthermore, the data contained in a blockchain is publicly available, thereby further ensuring integrity, accessibility and trust.
In the coming 10 years, the blockchain is expected to transform many other industries and areas of our society as well. Supply chain management is a major area the blockchain could have a huge influence on. Imagine the possibilities of being able to verify the quality and integrity of a project along every step of its production, from farm to factory to the hands of the customer. Companies would be able to pinpoint exactly where and when products get damaged or profits are lost, greatly reducing labour, emissions and time wasted during certain links of the supply chain. Even government processes like elections and voting would be completely radicalised, as accurate voter registration, identity verification and the counting of votes would be guaranteed – a massive leap forward towards more fair and open democracy around the world.
There are just some examples of the industries and institutions that the blockchain will also undoubtedly have a massive impact on and just like with any other futuristic technology (like quantum computing), one can only imagine the potential. The only current major problem that this technology faces, as we have recently seen in the media, is that the blockchain (and specifically Bitcoin mining) is extremely energy intensive. A recent study done by the University of Cambridge estimated that the world-wide energy consumption of Bitcoin mining is equal to the energy consumption of the entire country of Switzerland. We have seen the effect of this, as when Bitcoin’s price plummeted when Elon Musk’s Tesla announced in early 2021 that they will no longer be accepting Bitcoin as payment due to its environmental effects. This is certainly a setback that needs to be seriously addressed if blockchain technology is to be taken seriously moving forward.
Despite these issues, human beings remain inherently distrustful of each other, which slows down our economic and social growth. The blockchain could certainly help us to overcome this and allow us to cooperate better, faster and on a higher level than we ever thought was possible. There is certainly much more research and development that needs to be done in this field, but the successes of cryptocurrency have shown that it does work. By eliminating uncertainty, the blockchain has the potential to lead to an economic and social revolution, the likes of which we are yet to see in this lifetime.
