The Blockchain Explained

Blockchain technology was originally created by a person or group of people under the pseudonym “Satoshi Nakamoto” to serve as the backbone of the Bitcoin network. According to IBM, the blockchain is “… a shared immutable ledger for recording the history of transactions” (2017).  The blockchain utilizes a decentralized network of nodes to maintain an open-source, shared database and protect it from tampering, revision, and deletion. 

But how does it work? For ease and familiarity, I will describe how the blockchain works within the context of Bitcoin. Let’s say you walk into a pizza shop and pay the merchant using Bitcoin from your digital wallet. This transaction is carried out using a private-public key signature and is then broadcasted to the network of nodes, along with other pieces of information such as the addresses of the two parties’ wallets and a time stamp. 

From here, the miners take this information, reduce it to a sixty-four character hash using the SHA-256 algorithm, and start to pack it into blocks. As more transactions take place, they are merged with the hash of the previous transaction until the block is ready to be “sealed-off”. At this point, no block has actually been added to the ledger. Rather, each node has created their own block of transactions and is competing to add it to the ledger. To add their block to the ledger, the nodes compete to solve an extremely difficult mathematical problem that creates a hash combining that of the new block and the hash of the previous block.

This process requires brute computational force, but once the correct hash is determined, the winning node “seals-off” the block and adds it to the blockchain. From here, the rest of the nodes on the network verify the legitimacy of the block and broadcast it to the network of wallet holders and the process starts all over again to “seal-off” the next block of transactions. Blocks are added to the Bitcoin blockchain at a rate of six per hour – one every ten minutes ­– and miners are rewarded 25 Bitcoin’s for successfully “sealing-off” a block.

The blockchain is considered such a disruptive technology because it eliminates the need for intermediaries such as lawyers and bankers and can revolutionize our entire economic system. Students at MIT have even created a way for companies to verify that new-hires have earned their diplomas using blockchain technology, rather than having to contact the registrar’s office. It’s unlikely, however, that we see widespread adoption of this technology anytime soon. Iansiti and Lakhani at the Harvard Business Review suggest that it may even take decades for “blockchain to seep into our economic and social infrastructure” (2017).

Link to IBM Article

Link to Harvard Business Review Article

Questions:

1.       What do you believe are the pro’s of blockchain technology?

2.       What do you believe are the con’s of blockchain technology?

3.       Do you have any personal experience using Bitcoin, Ethereum, etc.? If so, can you elaborate on it to give the readers a better understanding?