Why Should We Care About Blockchain?
17 May 2017 |
About a 3 minute read
As discussed here, AND Digital is currently undertaking a piece of work building a product based on blockchain. But what is blockchain, and what problems might it help us solve?
The world before blockchain
We frequently transfer ownership of goods and currencies over the internet, usually using products built to manage these transactions. For example, if you want to give £20 to your friend, then you might use a service like PayPal to transfer your ownership of that money to her. In this case, PayPal has a ledger of all customer accounts with their corresponding balances. When you request this transfer, PayPal takes £20 off your balance and adds £20 to your friend’s account. This puts PayPal in a powerful position; they can charge a fee for handling this transaction and are entrusted to keep accurate financial records. But if someone hacked PayPal (which is unlikely, but not impossible), they could just move money from your account to theirs!
In fact, it would be very difficult for an average user to know if PayPal had been hacked, because you are reliant on them to provide all the information about your account. If that information is compromised then you might not even know it. This is true of many types of information we exchange and manage, not just financial transactions. For example, how do you know that an Airbnb host’s reviews are legitimate? How would you know that your driving license record at the DVLA hasn’t been tampered with?
In most cases, data is owned and managed by a single entity, which is responsible for ensuring the data is accurate and hasn’t been tampered with. So middlemen hold all the account information for its customers, and are responsible for ensuring no-one can ‘adjust’ their account balance to add a few 000’s! We need trusted intermediaries because there are people and organisations out there who we can’t trust.
How can blockchain change this?
Instead of a central organisation controlling the record of what transactions have occurred, everybody gets a version. This record, or “blockchain”, is made of chunks of transactions, (blocks) connected together (chained) using some clever cryptography. Because everybody has a copy of the record, if someone were to attempt to change a record then they’d have to change the blockchain of many of other users, making it much harder to attack than a centralised database. To solve the issue of trust over who can make transactions, blockchains rely on users identifying themselves using cryptographic keys and using the rest of the network to verify each transaction.
So to sum up, this bit of technical magic gives us a way to distribute a trusted source of truth. All users of a blockchain based service get a copy of the ledger so everybody agrees on what has happened and who owns what. Nobody can go back and change the record and there’s no powerful central party controlling what gets added to the record.
At the start of our project developing a product using blockchain we spent some time assessing some of the different blockchain protocols. Lookout for our next blog post where we’ll share our learnings on some common blockchain protocols.
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