Confused about blockchain? Here’s what you need to
know
On Nov 5, Reliance received India’s first payment using
blockchain. Though blockchain-powered virtual currencies are banned in India,
the underlying technology has immense potential across several industries. A
look at the basics of blockchain and its future
Don’t blockchains have something
to do with Bitcoin?
Indeed. The first blockchain was the database on
which every Bitcoin transaction was stored. Since Bitcoin began in 2009, the
blockchain has come to hold over 160 gigabytes worth of data.
Why is it called a blockchain?
In the original documents describing Bitcoin, the
virtual currency’s new database was not referred to as a blockchain. But it got
that name over time because all of the transactions coming onto the network
were grouped into blocks of data and then chained together using sophisticated
math. That makes it hard to go back and rewrite or monkey with the older
records.
How is blockchain different from
other transaction databases?
Most databases used to keep financial records are
maintained by a central institution. Banks, for instance, are responsible for
keeping track of the money in all of its customers’ accounts. With Bitcoin’s
blockchain database, the ledger is kept and updated communally by all the
computers that are hooked into the Bitcoin network.
The shared nature of Bitcoinwas useful for the
virtual currency because its shadowy creator, known as Satoshi Nakamoto, wanted
to create a currency with no central authority. Because records are kept
communally, no one computer or institution is in charge. If any one computer
keeping the records is hacked or knocked offline, the others can go on without
it.
Are all the blockchain projects
tied to Bitcoin in some way?
No. Most blockchains have nothing to do with Bitcoin.
After the Bitcoin blockchain had operated for a number of years, many wondered
if the design of the Bitcoin blockchain might be replicated to create other
kinds of secure ledgers, unrelated to Bitcoin.
Are blockchains used only to
record virtual currency transactions?
No. Most of the early efforts to imitate the Bitcoin
blockchain were done by programmers looking to create virtual currencies with
slightly different features from Bitcoin. Over time, some of these new virtual
currencies added on significant new features that updated the blockchain
concept so it could handle more kinds of information.
More recently, many companies and governments have
been interested in using blockchains to store data that has nothing to do with
transactions of any sort. While banks are building blockchains that can track
payments between accounts, governments are experimenting with using blockchains
to store property records and votes.
Why are companies excited about
it?
There are several limitations that come with the old
way of keeping data, with a single authority responsible for all the updates.
If that authority gets compromised by a hacker, or even by natural disaster,
the people relying on that database can lose access to all their data. With a
blockchain, all the people relying on the database can keep and update their
own copy of the data.
Can anyone join any blockchain
and help update the records?
With most large virtual currencies, anyone can join
in and see and help maintain the records. These are called public blockchains.
This system has made many big players looking at the technology uncomfortable.
Consequently, most corporations and governments have worked with private
blockchains, which only approved computers can see and join.
Don’t thefts involving Bitcoin
show that blockchains aren’t secure?
Most thefts involving virtual currencies are a result
of having its password, or private key, stolen or hacked. Virtual currencies
are particularly vulnerable to this kind of attack because once a hacker moves
money out of a wallet, there is no central authority to move it back. While
private keys are a security vulnerability, blockchains are generally more
secure against attacks in which a bad actor tries to change the records in the
database. Because of the way blocks are chained together, it is obvious when
someone has tampered with old records.
Do we know if blockchains are
better than old ways of recording data?
We don’t, really. Virtual currencies have shown that
blockchains can work at some level, but they also come with significant
downsides. Because all the computers on the network have to record every
transaction, there are limits to how much data blockchains have been able to
process. Many critics of the blockchain design have said the inefficiencies in
keeping data communally are likely to make blockchains unattractive.
At this point, aside from the big virtual currencies,
few blockchains have been battle tested in the real world.
—NATHANIEL POPPER | NYT NEWS SERVICE
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