Near the conclusion of 2017, something remarkable happened: Bitcoin, the cryptocurrency based on a technology first described in 2009, exploded in value. In a few short weeks, its value in US dollars broke five figures and kept climbing. Cryptocurrencies were nothing new, but this sudden massive spike in worth brought a new wave of attention not only to Bitcoin but to the blockchain, the system that underpins all cryptocurrencies.
New crypto coins now emerge daily, and wild speculation drives billions of dollars in investments, creating an atmosphere some have likened to the early days of the dot-com bubble. While speculators trade coins and chase after digital fortunes, many businesses and entrepreneurs see something of far greater value here: the blockchain itself. Hailed as a technology that has the potential to rewrite the entire way we think about the Internet; some businesses have seen huge surges in their stock value simply by changing their name to include the word “blockchain.”
Behind all the hype, the blockchain truly does have the potential to revolutionize more than the way we pay for goods and services online. In the age of industry disruptors such as Uber and AirBnB, blockchain applications could prove to be the most significant disruptive force of all. How could that be? To answer that question, it’s best to start with an understanding of how this complex technology functions.
What is a blockchain? Understanding this emergent technology
The simple and basic answer is that a blockchain is merely a “digital ledger.” It is a record of a series of transactions, shared in a decentralized fashion among all the computers that make up that blockchain’s network. A blockchain is more than just a transactional record, however. Let’s consider an example of a transaction using cryptocurrency for the sake of simplicity.
You begin by securing an address on the blockchain, a unique identifier based on a secret key known only by you, transformed into a digital code. When you want to send a unit of currency to another address on the blockchain, the entire currency network receives the news that your address wants to transfer a coin to another address. Using the software that underpins this network (often an open source protocol), other “nodes” (users) on the network verify the transaction as a legitimate action.
The information produced by this verification is then sent back to the network as a component for solving difficult cryptographic puzzles, a process known as “mining.” Miners, who operate the computers powerful enough to crack these codes, compete to be the first to solve the puzzle. The miner who solves the problem and validates your transaction (a process which usually takes only a few minutes) publishes the result to the current “block” in use on the “chain,” the permanent record distributed across the network. Your friend receives the coin you sent, and the miner — as a reward for committing the transaction to the blockchain — receives coins as well.
This is the most basic way to look at the blockchain. Users undertake actions, miners validate those actions for a reward, and the result is permanently recorded in the blockchain for all to see at any time. This makes the blockchain an incredibly tamper-proof record, and the underlying technology can do far more than only serve as a store of value for buying and selling products. That’s why companies such as Alphabet Inc. (the parent company behind Google) and many others now look to investigate how to implement the blockchain elsewhere.
The blockchain outside of cryptocurrency applications
The decentralized nature of the blockchain and its immutable record make it particularly appealing in a world of hacks and significant data breaches that seem to be a weekly occurrence. Because no single, central authority (i.e., Facebook) controls the data recorded on a blockchain, it is much harder to tamper with — and since the data also receives cryptographic protection through the creation of private addresses for each user, it is much harder to compromise overall. As a result, there are some who believe the future of our identities on the Internet lies in the blockchain — a clear and concise way to let users control access to who uses their information. This aspect of the blockchain also makes it appealing as a method for recording and validating votes in elections.
Banks have begun substantial investment in the technology as well, not to offer their own coins for public consumption, but to streamline commercial transactions that take place behind the scenes. With a blockchain protocol, banks could easily transact incredible amounts of business without the need to rely upon or wait for assistance from a third-party middleman. The amount of cash that might save is immense. Hedge fund traders also have a keen interest in using the rewards inherent in validating blockchain transactions as a way to decentralize trading analysis to find the best solutions — and thus make more money for the fund.
These applications, exciting as they may be, still take place in some very traditional spaces. What about the blockchain’s power to disrupt business as usual in other ways? Is the hype just that, or is there indeed some value in applying blockchain network technology in other areas? Based on the high level of ongoing research and development, it’s clear that many believe this is the way of the future.
Transformative potential that echoes across industries
Rideshare companies such as Lyft and Uber have turned the taxi industry on its head, but what if the blockchain could shake up the entire rideshare model, too? With a decentralized platform, an individual might broadcast their location and transportation intentions to the network. Others on the network, from Uber to a traditional cab driver and even other transit companies, could compete for your business. The transaction would go down into a blockchain and those who validated it would receive a token good for fiat currency or for usage on this new network for getting around.
Since a core part of the blockchain’s operation is a cryptographic analysis that ensures requests and information originate from and travel to precisely the right addresses, there are far-reaching applications in computer security as well. What better way to prevent “man in the middle” attacks or to fight back against phishers than to implement a method for verifying the authenticity of the person with whom you’re communicating? This is another area where the underlying technology could give rise to innovative ways for us to communicate, the same way that social networking reshaped our culture.
Online marketing is a lucrative industry already, but the blockchain could transform the way advertisers interact with their clients. By protecting user information and shielding it from advertisers, personal privacy gets a boost. Brave, a browser that rewards users with tokens for paying attention to specific content on the web, also dispenses tokens to website owners based on user activity. The result is a wholly different approach to advertising that may look increasingly appealing in a post-Cambridge Analytica world.
Blockchain has a bright future, but work remains
Even in a time where it seems that the pace of technological change gets faster every day, the rapidly evolving nature of blockchain technology still stands out as unique compared to recent innovations. While most agree that there is still much work to do before any of these applications are truly mature and ready for widespread adoption, there seems little doubt that the blockchain has the potential to transform not only the Internet itself but the way we think about doing business and offering services overall. While the price of Bitcoin may fluctuate, the blockchain’s stock seems only to be going up — and that makes it worth your attention both today and tomorrow.