The Plain English Guide to: Blockchain

Introduction

There really isn’t any technology quite like blockchain.

Not just in the mechanics of the tech, but also in its applications. It’s almost like a technology that we don’t quite know what to do with just yet — despite it powering cryptocurrencies for over a decade.

But we’re getting ahead of ourselves.

In this Plain English Guide, we’re going to explain what blockchain is, how best to understand it, why UK businesses might be interested in it, and how it might be used in the future.

So let’s jump right in.

What is a blockchain?

The best way to conceptualise the blockchain is as a digital ledger to which records can be added but not edited or deleted.

This digital ledger is decentralised, meaning it doesn’t reside in one single location or rely on a single entity (like a bank) to verify changes, but is instead duplicated across multiple computers across the world as part of a peer-to-peer network. This means each of the computers, or ‘peers’, store the data simultaneously, rather than relying on a single central server. Each of these computers powers the blockchain and serves to verify the ledger when someone wants to add to it.

As the name suggests, each of the records in a blockchain is known as a ‘block’ and it contains an encrypted description of the block which came before it. The technology uses cryptography – a complex form of encryption – to store the data about the previous block in the chain so that it can be verified but never changed. In this way, data in blockchains cannot be altered later without also changing (and invalidating) all of the blocks which came after it – a task which would be almost impossible, especially as the blockchain grows.

This immutability makes blockchain an attractive prospect for those developing secure computer systems, because data can be recorded effectively permanently without the risk of tampering or altering after the fact.

How does blockchain relate to cryptocurrencies like Bitcoin?

As we covered in our Guide to Bitcoin Mining, cryptocurrency and blockchain are two tightly interwoven concepts.

In order to incentivise the people running the peer-to-peer network which supports the blockchain, there needs to be a payoff of some kind – a reason to keep going. In the case of the first blockchain, the Bitcoin blockchain developed by the enigmatic Satoshi Nakamoto in 2009, that payoff is a digital coin called a Bitcoin.

Record keeping on the blockchain is a demanding process. It requires a lot of electricity and a lot of time on the part of those running the network, hence why they are rewarded with a Bitcoin whenever a new block is successfully created. This process of block creation and verification is known as ‘mining’, and, by design, it requires a lot of complex calculations to be carried out to achieve. It was designed this way so that each transaction is verified independently, thus avoiding the ‘double spending’ problem inherent to digital currency.  

Mining also gets more difficult and requires more energy over time, meaning fewer bitcoin rewards will be ‘mined’. In fact, the entire Bitcoin blockchain was designed to produce just 21 million Bitcoins, the last of which is due to be mined around the year 2140 based on current pace.

What possible applications does blockchain have?

And now… on to the real crux of the issue with blockchain.

While it’s an incredible technology for maintaining an (almost) 100% secure digital ledger, humanity still hasn’t found the perfect application for it.

What we mean by this is that, at the moment, blockchain is mostly associated with cryptocurrency transactions. It’s being used to securely log the movement of digital currencies like Bitcoin, Ethereum, and the many “altcoins” out there. But, assuming crypto doesn’t become our default way of spending anytime soon, how useful is blockchain in this scenario? For anyone outside of the crypto world… not much.

There are many companies out there trying to leverage blockchain as a means of storing other forms of data, and that could be a potentially fruitful avenue, but there are challenges – especially around the power consumption of running one of these blockchains.

Some of the current applications being explored by blockchain development teams around the world now include:

• Medical records storage
• Managing insurance claims
• Logging property transactions
• Voting in political elections
• Decentralised applications (Dapps)

This final point is an interesting one, because these so-called “Dapps” could potentially take the place of the apps we use today. Rather than using servers and remote cloud storage to access data, these apps instead use the blockchain to store data. This should result in a more secure experience for anyone who wants to keep their data secure. At present, Dapps are only available on blockchains like Ethereum which support ‘smart contracts’ – essentially small programs which live on a blockchain.

How could blockchain help UK businesses?

While it’s clear that blockchain still has a long way to go before it can become a replacement for any of a company’s current processes, there is still a potential future.

Assuming that we’re able to solve the big issues with blockchain technology, especially around energy consumption, businesses could potentially use blockchain for many different things. The primary benefit of leveraging blockchain in a business will be the additional trust which could be placed in everyday transactions.

With a blockchain backing up the transactions or decision-making in a business, human error can be eliminated, meaning cyber security and data security will both be second nature for such applications. This can be a big benefit for any company who handles or stores sensitive customer data.

For businesses which operate logistical operations, blockchain can be a big help when it comes to order or supply tracking. When every step of the journey for a specific item is forever carved into digital marble, it’s difficult for anything to just ‘get lost in the post’.

When it comes down to it, the biggest benefits blockchain can bring to UK businesses are:

• Increased transparency
• Increased data security
• A reduced reliance on trust
• A reduction in human error

If you’re in business, you’re probably already thinking of multiple different applications for this technology. The only question is: how long will it take to become a practical reality? And for that answer, we’re afraid, we’ll just have to wait and see.

Need help navigating the murky world of blockchain?

Whether this is the first you’re hearing about blockchain or you’ve already been thinking about how to make the most of it in your business, Get Support is here to help.

Our team of IT support experts can (try to) answer any questions you might have about blockchain or other Web 3.0 technologies — it’s all part of the service.

To learn more about how we support UK businesses with IT solutions, call us today on 01865 594 000 or fill in the form below.