Blogs >> What is the blockchain and why should you learn how it works?

What is the blockchain and why should you learn how it works?

By Warren Puckett
Guest teacher
How Blockchain Can Help Us Take Control Of Our Own Data

 

The blockchain “… gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.” — Marc Andreesen - Inventor of the first web browser

The world is abuzz with the term “blockchain” and how it will revolutionise the way we conduct business and organise society, but what is it and why should everyone have an understanding of how it works and why it is important?

In 2008, the world’s financial markets were thrown into disarray by the actions of a financial industry who were trying to make money by gambling on the misfortune of mortgage holders who shouldn’t have received a mortgage in the first place. It was called the subprime mortgage crisis (among other things) and it forced the lending institutions who survived it to come to the taxpayer and ask for hundreds of billions of dollars of “bailouts” so that the banking industry could survive the crisis and not bring the entire economy down in the process.

A few months later, a mysterious person or persons calling themselves Satoshi Nakamoto issued a white paper that would change the world. It purported to give the world a technology solution to the problem that led to the crisis and it was called the blockchain.

Conceptually, a blockchain is a tool that allows users to store information and be assured it will remain intact without having to trust any particular individual or institution, such as a bank, to safeguard it. It works by financially incentivising anyone with an interest in keeping it secure and then trusting that, collectively, this group will not act against the shared group interest.

The blockchain is composed of a chain of “blocks” containing information or data. On the Bitcoin blockchain, these blocks are created roughly every 10 minutes and contain a ledger of all the Bitcoin transaction that occurred in that period (currently about 7 per second) and then added to the end the chain and work commences on the next block. A new block gets added to the blockchain when the consensus of all the miners is that it is correct and matches their copy of what it should contain. The block is then added and the work on the next block commences. Once these blocks are added to the blockchain, it is extremely difficult (and expensive) to change after the fact, and the more blocks are added after the block you have an interest in changing, the more costly and difficult it becomes.

This revolutionary recipe for trust came about by creatively combining several existing and time tested technologies in a unique way that posited that the best thing to trust was not that others would look after our best interest out of a refined sense of ethics and integrity, but that people will always look out for themselves and that is what should be trusted. By harnessing this key concept and combining it with some technologies that make it difficult to change things after they are recorded, the blockchain was born bringing with it a whole new world of trust-less transactions.

Satoshi Nakamoto introduced Bitcoin in the white paper, as a particular implementation of the blockchain in the form of a cryptocurrency. The Bitcoin blockchain’s primary purpose would be to act as a ledger for the transactions people made with their Bitcoins. Since then there have been thousands of blockchains created for all sorts of purposes, some public and some private.

Ethereum is a public blockchain based platform that allows for software programs to run on its blockchain in addition to the ledger function. Now we can use software to make what are called distributed applications (dApps) and “smart contracts” which, once triggered by the parties involved, can carry on and accomplish the shared objective without further interaction by the agreeing parties.

Here is an example of a smart contract in action. Let’s say you wanted to make a wager with your friend that England would win their group in the upcoming World Cup football tournament. You decide to bet £100 that England will finish at the top of their group and you agree to use the official World Cup 2018 site as the source of truth when determining the winner. You each digitally sign the contract and the smart contract takes £100 from each of you and puts it into an escrow until the results of the wager is determined at the appointed time and data source, at which time both amounts (£200) will be transferred to the winner of the wager. This is a very simple example of a smart contract, but the applications of this concept is just beginning and is poised to revolutionise how business and society in general will function in the future.

The blockchain and its related technologies are poised to change the way we do many things. Much like the way the Internet changed everything, the blockchain will too and it is important to understand it so you can be a part of that revolution.


 

Warren Puckett was a member of the founding team of 38 Degrees, the British not-for-profit political-activism organisation and platform for citizen campaigns. Formerly digital director of ethical communications agency Provokateur, he now runs his own web consulting firm, Peat Fire Studios and has worked to bring the newest available technologies to bear to solve their real world problems for over two decades.

You may be interested in this course:
How Blockchain Can Help us Take Control of our own Data

Mon, 06/08/2018 to Fri, 10/08/2018
With Alex Bedoya, Paul Bessems, Vinay Gupta and Warren Puckett

By 2020 the global data economy is predicted to be worth $906 billion. Data analytics will soon be indispensable to any economic activity and decision-making process. But who is safeguarding our data and who is currently extracting its financial value? This course offers practical and theoretical knowledege of data economics for use within an organisation or community. Learn More