If you’ve paid attention to the news at all lately, you’ve probably heard about Bitcoin and other cryptocurrencies. They’re the hottest new investment, but few people even understand what they are and how they work. I’ll get into the cryptocurrency trend in another article, but for the moment let’s focus on the blockchain.
What is the blockchain?
The blockchain is the technology that “powers” cryptocurrencies. It’s mind-boggling to think about, but blockchain technology allows data to be stored simultaneously across an entire network of computers. That means no one person or company can control the data, and there’s always a continuously-updated record of that data available for verification. (Skip down to how the blockchain will change the world.)
So is that good or bad?
The blockchain decentralizes data storage, giving more control to the individuals who use it.
Currently, the standard is to store our personal information in a centralized location at each company we purchase from. But most of us probably wouldn’t leave our personal info at every brick-and-mortar store we visit. Up to this point, it’s been common practice for us to enter our sensitive info on dozens of sites – but that will likely change as the blockchain becomes more popular.
How is the blockchain more secure than our current method of storing personal information?
Like I mentioned earlier, blockchain data is stored across a huge network of computers around the world that automatically checks the data every ten minutes. Each verification made every ten minutes is called a “block,” and it’s added to the previous blocks to form a “chain” – hence, the blockchain. Because the data is stored on many different computers rather than in one centralized location, hackers are unable to exploit single points of vulnerability. A massive amount of computing power would be necessary to override the entire network of millions of computers. In addition, an attempt could be stopped by the network quickly and it may destroy the data (or currency value) that’s being hacked, potentially rendering the hacking pointless.
But what about sensitive information like credit card numbers, bank accounts, and social security numbers? This data would be controlled exclusively by the person who owns it through their “private key.” This is a string of numbers associated with only that person. How that person stores their private keys is the most important part of blockchain security. If a user stores that info on their personal computer or in the cloud, it could be hacked and the keys could be stolen. The two most secure methods of keeping private keys is to put them on a device like a USB drive and disconnect that drive from the Internet, or, ironically, write those private keys on paper and keep them in a secure place.
Keep in mind that because the blockchain is only about ten years old, the technology is still evolving. Some people believe the blockchain will never be completely secure because mega-corporations or powerful countries will be able to develop the computing power to hack the entire network. The risk of loss is there now – individual cryptocurrencies have been hacked already, costing investors millions of dollars, mainly because users or cryptocurrency companies were careless about protecting private keys. (See above how important it is to protect private keys.)
How will the blockchain change the world?
The possibilities are virtually limitless. Here are just a few things the blockchain could give us control over:
- The blockchain could enable us to transfer money without a “middleman” like a broker or a bank, eliminating transaction fees.
- We could sign contractual agreements with others and have a clear, indisputable record of the transaction.
- It could mean the end of consumer product companies storing and using our personal data.
- Patients could maintain full control over their medical history and authorize only specific people to view the data.
- The blockchain could allow artists and musicians to automatically charge a fee to users of their digital content, potentially eliminating unauthorized use or copying of their work.
- And it could even allow us as individuals to sell our personal info, such as how we use digital products like our smart thermostats and even Alexa, to companies we approve of.
The whole purpose of the blockchain is to decentralize control over data.
Right now, our data is very centralized – agencies control our credit ratings, companies control our sensitive info, and institutions control how we make transactions. The blockchain potentially gives each of us more control over those activities, and in my mind, that makes it an exciting technology worth watching.
Got questions about cryptocurrency or blockchain technology? Send me a message.
Want to read more about the blockchain? Here are a few resources:
What is blockchain? (PDF download)
Cryptocurrency Wallet Guide: A Step-By-Step Tutorial
What is Blockchain Technology? A Step-by-Step Guide For Beginners