Blockchain 101: What is it and why is everyone talking about it?

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Kyan Insights

6 min readJun 27, 2017

The Recent Growth of Bitcoin

With the recent news that the value of bitcoin is at a record high, it’s led to many speculating that digital assets are finally making a push into the mainstream. To put Bitcoin’s growth into perspective, the Economist has highlighted that:

“Anyone clever or lucky enough to have bought $1,000 of bitcoins in July 2010, when the price stood at $0.05, would now have a stash worth $46m.”

But it’s not just this extraordinary increase in value that has people intrigued. Entrepreneurial circles have also been investigating the possibilities that the underlying technology (blockchain) may have in terms of alternative applications, away from cryptocurrencies.

To people outside of technology circles, blockchain is a word you see thrown around at the same time as Bitcoin, but what it is and how it works is rarely communicated in a simple way. Before we get into those specifics, let’s start with the background as to why it was created and why it’s such an impactful technology.

Context

We live in a time where everyone (and soon to be every thing) is already connected. Computers run literally everything. This includes processing billions of financial transactions every day. There is still a degree of inefficiency in our process however due to the work required to ensure these transactions are legitimated.

When two people want to make a transaction (from separate banks), they each need people to independently record the transaction, validate it and then check what the other side recorded. This then needs to be repeated whenever anything changes. This is a lot of work simply to ensure that the two people (and entities) involved see the same thing. So there’s a big potential efficiency saving there if you’re able to cut out the need for the middlemen / institutions.

As an additional incentive to founding cryptocurrencies in the first place, the financial crisis of 2008 highlighted the volatility that intermediary institutions can inflict on the market in the wrong circumstances. The creation of bitcoin was thought to provide a libertarian alternative without necessarily even requiring these institutions.

It is somewhat ironic with this history that traditional financial institutions and teams building blockchain-based products specifically for their usage are some of the largest early adopters and enthusiasts. Santander is on record as suggesting that banks could save up to $20 billion per year by as soon as 2022 through the use of blockchain.

What actually is Blockchain?

Simply put, Blockchain is a method of recording data. It’s a digital ledger of anything that needs to be documented and verified as having happened. This could be transactions, contracts, agreements or anything else that would benefit from being viewed in a completely trusted and transparent format.

Why is it so trustworthy?

This ledger does not exist in any one ‘place’ — it is held collectively across thousands of computers simultaneously with no single user able to edit or control it. Everyone on this network has an up-to-date version of this ledger and it also updates in real time. In order for hackers to attack it, they’d have to simultaneously have access to every single copy of it. This is obviously an infinitely more challenging task than if it were located in a single place.

There is also some clever cryptography, which condenses the original information (each transaction for example) into a code or ‘hash’ as they’re referred to. This information cannot be interfered with or corrupted, as any attempt to tamper with any part of the blockchain would be immediately apparent, as the new (altered) hash would no longer match the other versions.

Importantly, the creation of the hash is a one-way process — a hash cannot be reverse engineered back into the information that it was created from. Alternatively, If the initial transaction were altered in any way, it would produce a different hash to the original, and (again) this mismatch would be immediately flagged.

So (in theory), using blockchain makes fraud both far more difficult to achieve in the first place, and easier to identify if it were to happen. Bitcoin.org has produced a video that does a good job of detailing the advantages of the currency and the technology:

The complicated Bit

While you will occasionally hear ‘ the’ being used to in relation to blockchain, this is potentially misleading. In reality, there are many competing (but similar) distributed ledger technologies. So in dealing with the subject at a more complex (or perhaps contextually specific) level, it becomes necessary to mention specifically which blockchain you are referring to.

A frequently used comparison point for blockchain is the early stages of the internet. Comparably to the internet, blockchain is an open technology upon which companies (or individuals) can build products and services. The internet also became a far more effective platform once it gained critical mass, due to everyone using the same technology and it become ‘ the ‘ internet. While it was the ease and advantages of email that drove adoption of the internet, it could be argued that the success of bitcoin might serve a similar role for blockchain.

Some, including TechCrunch journalist Jon Evans, don’t necessarily see the internet comparison, and actually prefer to compare the current place of Blockchain to Linux during the same period. The idea being that early attempts to quickly make the technology mainstream may fail, but it will still likely be employed behind the scenes in a wide range of groundbreaking tools. For now however, (according to Evans at least) the popular solutions are probably still more than adequate for most people.

Where next for blockchain?

So what’s next? As discussed, in the case of Bitcoin, blockchain enables the currency to run without requiring a bank or any other form of intermediary. The majority of countries globally now accept Bitcoin as a legal and accepted currency and its value it at an all time high. Away from cryptocurrency, Georgia (the country) is already using distributed ledger technology to secure government records, Honduras looked into using blockchain to handle land titles and the Isle of Man has begun testing the technology for IoT (Internet of Things) applications. It’s these kind of alternative applications that leads to speculation around how else it might be implemented. The University of Surrey has recently been awarded a grant to research how the technology might be better implemented in public services for example.

Almost everything discussed so far in this article refers to digital assets and interactions, but there are already businesses bridging the gap with physical items too. The UK Government has produced an informative introductory video on the future and implications of the technology.

The examples provided in the video include using a distributed ledger to trace the origins of diamonds (to ensure ethical sourcing), to help fishermen prove the provenance of their fish, or to assist small-scale farmers create an economy of scale for their produce by registering the availability through a distributed ledger.

So with everyone from entrepreneurs, to major financial institutions to national governments looking to work with blockchain, it’s understandable why there is so much conversation around the technology. But how does this technology really become opened up for innovation?

Ethereum — opening the tech up to developers

Ethereum, (in the most basic terms) is a platform that allows developers to more easily build applications that make use of blockchain technology. In the words of its creators:

“These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middle man or counterparty risk.”

Applications have already been built using Ethereum that look to challenge how money is distributed in the music industry, change how we think about charitable donations and even how we share our real life experiences.

So while blockchain technology in the mainstream media is still often just associated with bitcoin and the other cryptocurrencies that have emerged, the future is far more open. There are incredible opportunities for innovation and it’s likely the best applications of this technology have yet to even be thought of.

I’d be interested to hear in the comments where you (yes you, dear reader!) see the future of blockchain, and the best alternative uses you’ve seen, heard or read about.

Further Reading:

Originally published at https://www.linkedin.com on June 27, 2017.