NICK COWEN

There’s a term that has made its way up from beyond the technology and finance news sectors and is rapidly becoming part of mainstream parlance: blockchain. You normally hear it associated with electronic cryptocurrencies such as Bitcoin and the reason for this is that blockchain is essentially the system – the support structure – that allows them to work.

But like many technologies that power disruptors, blockchain has myriad applications beyond what it’s famously known for. Bitcoin is currently the headline-grabbing mainstream entry point to blockchain; after all, if you allow investors to make a profit without relying on intermediaries – which is what Bitcoin does – you’re bound to cause a stir.

But if you strip away cryptocurrency and simply look at the technology behind it, the potential begins to bloom. To put it bluntly, as Financial Times technology reporter Sally Davies did: “Blockchain is to Bitcoin what the internet is to email. It’s a big electronic system upon which you can build applications. Currency is just one.”

To understand blockchain’s potential, it’s worth taking a brief look at its history, which starts with the most used form of cryptocurrency. Bitcoin was first proposed in a white paper back in 2008, authored by a person (or persons) known as Satoshi Nakamoto.

The paper’s main thrust detailed an innovative peerto- peer payment system for online transactions that didn’t rely on an intermediary, using a digital currency – Bitcoin.

While the new payment system was exciting – as evidenced by the currency’s prominence to this day – the mechanics behind it, blockchain, proved even more revolutionary. Here was a system that decentralised ownership of data while providing peer-to-peer verification. It was, and is, the most democratic system for data in existence.

So how does it work?

Imagine a database that has no owner or central administrator (like say, a bank, or a government, or Google). That database is made up of parcels of information that are constantly updated. This network acts as both a verification system and a means of conducting transactions online. It’s essentially a decentralised ledger, a network made up of databases of digitised assets that are replicated and verified, available via the internet to anyone with access to the network. These networks, incidentally, can be open (available to anyone), or the users can choose to restrict access to them. In short, blockchain allows users to make data-based transactions without the need of an intermediary, because the technology itself acts as a guarantor. The ‘block’ in blockchain

refers to the record of new transactions (which could be for cryptocurrency, personal data, medical records and the like). Once a block is completed, it’s added to the ‘chain’, creating a blockchain. When a transaction is carried out, it’s grouped together and encrypted

with other transactions that have been sent on a network within a 10-minute window. Processing these transactions becomes more complicated the more a blockchain grows, and people with the highest computing power in the network – who are referred to as ‘miners’ – compete to solve these problems, thereby validating the data in the network. They’re rewarded for these efforts, usually in Bitcoin.

In a way it works similarly to Google Docs; whereas once collaborating on a document would require one person at a time making changes and updating it, now a list of users can work on the

document at the same time, adding changes that are instantly available to anyone with access.

Since blockchain is encrypted, open and decentralised, users can put more faith in peer-to-peer transactions. They no longer need to rely on banks in order to conduct

business and have access to timestamped information, which gives a clear and accurate picture of the assets and data of the people they’re dealing with. Furthermore, blockchain’s freely distributed model makes hacking it nearly impossible. Unlike a bank, the database of which a hacker could target easily, hacking a blockchain would require the hacker to attack hundreds – if not millions – of information nodes simultaneously.

Now, while blockchain was originally created to form the backbone for Bitcoin trading, its potential beyond cryptocurrency is staggering. Beyond currency transfers, blockchain can be used to store and verify all sorts of data, ranging from medical records and property assets to collaborative projects and electronic voting.

With its ability to dispense with intermediaries across the board, blockchain is a massively disruptive technology that will likely affect hundreds of industries as more and more businesses, individuals and governments start turning to it. This really is the internet transforming before our eyes.