Not since the Internet itself has a technology shown such promise and elicited such excitement than blockchain technology. The potential of blockchain technology seems limitless. The world’s new smart economies along with dozens of start-ups are using blockchain technology for everything from global payments to music sharing. It is predicted than in the next few years, much of our digital consumption will be run via a blockchain foundation without us even realising it.
What is it exactly?
Blockchains are essentially a chain of little bits of data that is connected thus the name ‘block chain’ as it’s a chain of blocks of data.
It’s often described as a distributed public ledger of transactions where identical copies are maintained on multiple computer systems controlled by different entities or continuously list of records which are linked and secured using cryptography.
An individual blockchain is built with its own set of protocols and rules that everyone agrees to. So once data or information is captured on the block it’s basically impossible to alter it retroactively.
Key traits of blockchain:
1) Distributed or a decentralised ledger:
It’s a database that is distributed i.e. it’s not held in one place but across multiple sources.
Every single member of the blockchain network has a copy of that database, so if anyone tries to alter data it, it is picked up and discarded because all the other members have the right untampered data, eliminating the potential for fraud or tampering.
Having data being decentralised makes it more secure.
If you compromise a centralised database you have access to ALL the data.
To compromise data on a blockchain, you need to go and compromise every single member of that network, it could be millions of computers so it’s just too hard and too time consuming to even try.
Blockchains are encrypted i.e. use cryptography that jumbles up the info so it’s not apparent to the naked eye and again making it even more secure.
This is why when they are public ledgers because you can share the information and show the transactions without compromising personal information.
A blockchain is built with its own set protocols that everyone agrees to. These protocols are known as consensus.
Consensus is the network protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract within a blockchain.
This makes a blockchain is immutable i.e. can’t be changed after the fact.
Smart contracts are a way to add logic and steps for running actions on top of a blockchain. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.
Why is blockchain technology so important?
The potential for blockchains or distributed ledger technology is immense. They are inherently safer by design and potentially suitable for the recording of events, medical records and personal ‘sensitive’ information but not only that —blockchains and the subsequent applications built off of them (aka decentralised applications or ‘dapps’) are not all alike, they are built with their own specificity to address different needs.
What are the current limitations of blockchain technology?
While the potential of blockchain technology might seem endless -there are certain limitations.
The major limitation of modern-day blockchain technology, identified by the Quant founders, has been the inability of blockchains to communicate and working with one another i.e. lack of interoperability.
In order for blockchain technology to unlock its true potential, it needs to allow seamless communication across multiple blockchains as well as recognition of transaction across blockchains. Consider this: why can’t the smart contract include code executed on other blockchains as part of its process?
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