Blockchain summary

If you look up the definition of blockchain, you’ll learn that it’s a digital ledger, or book in which accounts or monetary transactions are recorded.

If that sounds boring, look at it this way: ledgers are the foundations of civilization. Without them, we wouldn’t have been able to build cities or efficient markets. They are the means by which we do everything from keeping track of our finances and demonstrating ownership of a house to verifying our status as citizens.

For hundreds of years, the world economy has been based on a ledger system called double-entry bookkeeping. These ledgers have two columns for information: debit and credit. As long as the credit and the debit for a transaction match in both the buyer’s and the seller’s books, that transaction is error-free.

In order to establish trust in the system and ensure that a transaction is true and accurate, double-entry accounting requires middlemen. Brokers, bankers or other intermediaries get a fee to certify the legitimacy of transactions.

However, history has shown us that this system isn’t always reliable. In the aftermath of the 2008 financial crisis, it was revealed that many large corporations, like Enron and Lehman Brothers, had effectively been keeping extra sets of books, which they used to conceal the true nature of their financial operations. For years, these companies were able to manipulate the system to launder vast amounts of money.

Ever since the dawn of the Internet, many have hoped that it would bring an end to these kinds of transgressions. But until now, the Internet’s susceptibility to hackers has posed security issues when it comes to large financial transactions.

However, the blockchain might change all that. The blockchain was originally created as a platform for the cryptocurrency Bitcoin. By tracking every purchase or sale, the blockchain ensures that a digital coin can never be spent twice. Transactions are all online for everyone to see; all you need to join is an Internet connection.

In addition to credit and debit, the blockchain has a third column in its digital ledger: verification. This  eliminates the need for intermediaries. Instead, trust is built into the very system.

Blockchain technology is already being developed in ways which might revolutionize everything from the way that artists can certify the provenance on their work to the way we value currencies such as the U.S. dollar. It could even eliminate the possibility of tampering or lost ballots when it comes to voting.

But how can we be sure that this technology is so trustworthy? That’s because unlike other ledgers, the blockchain is unhackable and unalterable. In the next blink, we’ll take a closer look at how it actually works.