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From a bird’s eye view, blockchain technology may not seem too different from the other tech innovations you’re already familiar with. However, as you get closer to ground level, the differences that make blockchain technology unique and special become clearer.
So what is a blockchain? With a blockchain, people can write entries to an information record, and users can control how the information record is updated and modified. Like Wikipedia, the entries are not the product of a single publisher. In fact, no one person controls the information that is published.
Although both run on distributed networks, Wikipedia is integrated into the World Wide Web through a client-server network model. A user, also known as a client, with permissions associated with their account is eligible to change Wikipedia entries that are stored on a centralized server.
Every time customers access the Wikipedia page, they will receive an alert with the updated version of the ‘master copy’ of the Wikipedia entry. As for the control of the database, this remains in the hands of Wikipedia administrators.
Wikipedia’s digital backbone is very similar to the highly-protected, centralized databases that banks and governments maintain today. Centralized databases are controlled by their owners, which includes managing updates and protecting the database from cyber threats.
On the other side of the equation, the distributed database created by blockchain technology has a completely different digital backbone. Not only that, but this is the most important feature that makes blockchain technology stand out.
This “distributed database” does not rely on a singular server to approve your transactions, but all data on the blockchain is validated and updated by each computer running this ledger. These computers are called nodes and they are responsible for validating each transaction and maintaining the general rules of consensus, but not all nodes process transactions and create blocks of data.
That’s where mining computers come in, every ten minutes or so the miners collect a few hundred pending transactions and turn them into a mathematical puzzle. The reward for cracking the crypto puzzle is what entices others to maintain the blockchain. Whichever mining node solves the puzzle the fastest, is the one that receives the reward and can add the new “block” to the blockchain. Once the transaction is approved by all nodes on the network and individually updated, it cannot be undone.
Let me try to simplify it a bit more using an example of a simple Bitcoin transaction. Let’s say that Alice wants to send Bob two bitcoins, Alice broadcasts the transaction request to send two Bitcoins to Bob to all nodes in the peer-to-peer network of the Bitcoin blockchain. These computers then check the new block against the old block, essentially checking to see if Alice has enough “bitcoin” in his wallet, and all the computers start racing to figure out the difficult cryptographic puzzle. After the first computer solves the puzzle, it broadcasts the transaction to the entire network for verification and when it is confirmed, the computers update their systems with the new information and start working with that new block formed. Bob receives Bitcoin in his wallet and the Bitcoin sent by Alice is removed from her wallet. Each computer on the blockchain network now has this data stored in its own individual database.
The ‘master copy’ of Wikipedia is edited on a single server, and with this, all users can see the new updated version. Regarding a blockchain, all the nodes in the network come to the same conclusion, each one updates the registry on its own, and the most popular and recent registry becomes the de facto official registry instead of there being a master copy.
This is the difference that makes blockchain technology so useful: it represents new ideas in information recording and distribution that eliminates the need for a trusted third party to facilitate digital relationships.
And the result? A system of digital interactions that does not require a trusted party to monitor relationships. The job of securing digital relationships is strictly implicit.
Trust is a judgment of risk between separate parties. As for the digital world, determining trust tends to boil down to proving authentication and proving authorization.
To simplify, people want to know, “Are you who you say you are?” Y “Should you be authorized to do what you’re trying to do?”
When it comes to blockchain technology, private key cryptography helps provide a powerful proprietary tool that meets authentication requirements. As mentioned earlier in Alice and Bob’s transaction, a cryptocurrency wallet contains your “cryptocurrency”, but it actually only contains two separate keys. Your private key, which shows ownership of what you own, and the public key that is stored on the blockchain network. Together, combined, they complete a digital signature and also prevent a person from having to share more personal information than they would like. For a transaction to take place, both keys must match.
That said, authentication is not enough. Authorization is something that a distributed peer-to-peer network needs. Why? Because a distributed network reduces the possibility of centralized failure or data corruption. If there are hundreds of nodes on the network checking to see if a transaction is true, it would take a ridiculous amount of computing power and money to change and corrupt the data.
In addition, this distributed network has to be committed to the record-keeping and security of the transaction network. If a transaction has been authorized, it means that the entire network has applied the rules on which it was designed.
Essentially, when authentication and authorization are provided in this way, interactions in the digital world do not have to rely on moral trust.
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