What is Blockchain?

‘What is blockchain?’ I’ve been getting asked this question a lot lately. And it’s not because everyone wants to invest in Bitcoin or altcoins (oh, don’t you know what altcoins are? Well, I’ll make a note to tell you about that another day.), but because lately you hear about other types of projects based on blockchain technology. A few weeks ago we already talked about how blockchain technology is applied in cryptocurrencies, for example in Bitcoin… and also, on this very blog you’ll find a post about cryptocurrency mining with a more technical and in-depth take… but Blockchain isn’t just used for Bitcoin transactions, it has many more uses. Let’s first see what exactly this blockchain thing means.

What is blockchain?

The translation of blockchain is literal, ‘chain of blocks’, and it’s basically a distributed ledger (though we’ll see other uses it can have later) with three main characteristics: it’s distributed as we’ve mentioned, decentralized, and secure.

Imagine a ledger where you have an identifier in one column, say 0001, and a value in the second column, say $20. Well, that ledger gets sent out to the entire network and, once it’s been distributed, the rest of the nodes go on adding entries and syncing it again, so that everyone ends up with the same updated copy containing the same information.

Let’s make this clearer with an example: think of your regular old bank: to find out how much money you have, you need to log into their website (I’m not going to call it «updating the passbook» like my friend @CesarTowers10 does) and check the balance on your account. In this case you’re trusting a single entity, your bank, which is the one telling you how much money is in your account, but that might not be true, or they might make a mistake… maybe it’s never happened to you, but it could happen due to a computer glitch. Likewise, when you make a transfer, your bank has to get in touch with the other bank to note down that you now have X amount less and inform the other bank that the recipient’s account has X amount more, on top of which you get their fees and their waiting times (best case scenario, since international transfers can take several business days) and doing all of this in a way that’s completely opaque to the user, who can’t see how the transaction is going or whether one of the banks is taking too long to respond, right? Well, using Blockchain to make a Bitcoin transfer, for example, you’d have to send a message to the entire network saying «I want to transfer X bitcoins to this wallet address» since wallets are anonymous, you can see how much money is inside but not who it belongs to. At that point, the network would verify that you have enough bitcoins to make the transfer. If everything checks out, the transaction would be recorded and validated, no waiting involved, and it would become part of the block of transactions, even though it hasn’t been distributed across the entire network yet. Once that block has been filled with as many transactions as it can hold, it gets validated, encrypted, and a new block is generated where the new transactions will be recorded, all of which is done through mathematical algorithms (this is what we know as the mining process we explained more technically in this post).

Other uses of blockchain

Think about the results of a blood test when your doctor tells you «the lab has sent us the results… and you’ve got two days left.» In this case, we’re trusting that the lab hasn’t made a mistake, although with something like that we’d surely ask for a second opinion and have the tests redone at another lab… but imagine your blood could be analyzed simultaneously by a gazillion labs and all of the gazillion gave you the same result, you wouldn’t have any doubt left that you’ve got two days to live.

The example I like best is voting. Yes, that thing we Spaniards sometimes do to make fools of ourselves in front of the whole world all over again. As you’ve probably heard now and then, there’s always some mess with the vote count, whether it’s mail-in ballots, or Spaniards living abroad voting somehow, or nursing homes handing out whatever ballots they feel like to the elderly… a thousand stories. Now imagine a distributed ledger of votes where you yourself can vote digitally and your vote gets distributed and counted in real time, without having to count the votes by hand one by one at the end of the day (it’s a joke that we’re still using manual counting in the middle of 2018), and of course without any way to cheat, even authenticating yourself with your electronic ID (now that it’s secure again) and your webcam so no one can impersonate you just by having your electronic ID, which would let us vote even from home or from the office, saving on travel costs and the hassle that comes with that day.

There are also projects looking to use Blockchain for medical records, which as you probably know aren’t currently synchronized, so if you move from one region to another you’ll have to personally inform the new health center of your entire medical history since it’s not possible to export and import this data… with Blockchain not only could this be done seamlessly, but a system could be rolled out at the European level so that if you’re in another country and need to see a doctor, that doctor would have a copy of your medical record where they could add information, which would then sync automatically once validated by the rest of the nodes or countries in the EU.

In short, Blockchain is a kind of database distributed across systems that don’t need to have any trust relationship with each other, with the distinctive feature of being decentralized, synchronized in real time by all the member systems, and validated by several of the network’s participants.