Tech powering Cryptocurrencies

There has been a lot of hype around cryptocurrencies of late and they seem to be the future. With news of China launching their own digital currency, Facebook with its libra and the likes of Bitcoin making waves... crypto has a pretty solid following. One would ask, so how do these cryptos work exactly? What technology really powers them and why have they gained popularity like this ? That is what we will look into today…blockchain technology. The history of blockchain starts in 1982 with David Chaum proposing a blockchain-like protocol in his dissertation “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups”. Further work was performed in the nineties by Stuart Haber, W.Scott Stornetta and Dave Bayer. A person or persons known as Satoshi Nakamoto then carried out the successful implementation of the concept in 2008 giving birth to Bitcoin the following year.

What is Blockchain?

Blockchain is a Distributed Ledger Technology (DLT) that makes the transactions stored in the database very difficult to modify or hack. You can store the information yes but cannot easily edit it. This makes the idea of cheating the system impossible. Now, because of its distributed nature, transactions stored are then duplicated across the entire network of computer systems linked to the blockchain.

How does it work?

Whenever a new transaction is performed, the information is stored in blocks that are linked (chained) together using cryptography. Once stored, the information is distributed across the network to other ledgers. An individual block consists of the following:

These three bits of information enable the block to be identified and linked to form a chain. When compared to a relational database we see that a relational database stores its data in tables whereas blockchain stores its information in blocks . There is also a contrast in that a relational database is administered by a single entity whereas blockchain has no single administrator as transactions are replicated across the entire network. This is what makes blockchain technology trustworthy.

What are the properties of blockchain?

Transparent

Anyone can view the transactions that occur using blockchain explorers.

Secure

New blocks are stored linearly and chronologically added at the end of the chain. Once a new block is created, it is difficult to revert to an old block and alter the data unless a consensus is reached by a majority of people. The records are individually encrypted.

Immutable

Records that are validated are irreversible and cannot be changed.

Anonymous

It is possible to perform transactions anonymously.

Unanimous

No one person has ultimate control, all network participants agree to validate transactions.

Programmable

The blockchain enables applications to be built on top of it such as smart contracts.

Possible applications/ Use cases

With the properties mentioned above, blockchain technology is applicable in the following areas:

Cryptocurrency

Blockchain technology is the main component in the development of cryptocurrencies such as Bitcoin, Ethereum and Dogecoin.

Banking

Banking requires transactions to be secure and processed in time. This enable processes such as cheque processing to be performed in a matter of minutes.

Smart Contracts

A smart contract is a digital contract that is programmable in nature. Human resources can use blockchain technology in people administration.

Healthcare

Patient records can be stored on the blockchain in a safe and secure manner by healthcare professionals.

Mining

Minerals can have their records placed in the blockchain for future origin tracking and tracing.

Legal

Court documents can be stored on the blockchain and prevent tampering with evidence.