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).
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?