What is Blockchain Technology?

Blockchain, the technology behind bitcoin, is a major innovation, holding potential to change the financial sytem.

Photo: BTC Keychain/Flickr

Photo: BTC Keychain/Flickr

Year of 2014 was remarkable for bitcoin. Amid huge price fluctuations, the cryptocurrency was also involved in certain criminal activities. All these factors have significantly undermined investors’ credibility of bitcoin.

However, bitcoin’s underlying technology, blockchain, is believed to have an impact on the way financial system works. According to developers and investors, blockchain has much more potential than the digital currency itself.

A blockchain is a public ledger, which stores new bitcoin transactions that have ever been realized on a “block” of data. Each block uses code in order to refer back to the preceding chunk of information, thus creating a chain.

Each block comes after the previous one in a chronological way because the previous block’s hash would otherwise not be known.

Besides, it is computationally impractical to modify each block once it has been in the chain for a while because every block after it would also have to be regenerated. This makes double-spending of bitcoins very difficult.

Some in the bitcoin industry believe the blockchain holds a potential for innovation in the voting system. If it is possible to use the technology for money transactions, they argue, it will be possible to use it for voting as well.

The key problem of Internet voting system is that it’s very difficult to prove that the voting machines have not been compromised. The blockchain would help to solve those problems. It would ensure the integrity of votes and would prove that a particular vote was made by a holder of a specific private key.

Among other areas, the blockchain can be used in the banking system to verify financial transactions and simplify the overall banking processes.

The Bank of England have also recognized the future potential of the technology and described it as a “significant innovation” that could have “far-reaching implications.”

Pamela Morgan, a lawyer from the US, has recently unveiled her position on bitcoin and the technology behind the digital currency. While giving her speech at the bitcoin conference in Melbourne, Morgan said:

“So I really think it opens up the credit market for individual lending to individual people. Once we get property on the blockchain, once we’re able to tokenize title, then those applications are going to naturally grow from that.”

She believes that bitcoin opens up the possibility of smart contracts. “As we move into smart assets and we tie smart assets together with bitcoin and the payment network, we’re going to see smart contracts.”

Morgan’s view on cryptocurrency is similar to those of Dave Birch, who has recently given a lecture on bitcoin. He argued the blockchain is the core innovation and its key benefit is the ability to stop double spending of virtual currency.

Bitcoin is definitely a risky investment, but the technology underpinning it has a huge potential to disrupt the world financial system.

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