History of Blockchain
Blockchain was invented in 2008 by Satoshi Nakamoto as the foundational technology for the original crypto currency called bitcoin. Early in the history of blockchain many people thought the only application of the technology was bitcoin and other cryptocurrencies. Since 2008, the underlying blockchain technology has been applied to thousands of other business domains.
What is a Blockchain?
It is a distributed digital ledger that leverages cryptographic hashes to protect the data while still providing full transparency. A blockchain can be used to manage crypto currencies (such as Bitcoin), personal identity, property ownership, goods in a supply chain, and countless other items.
A blockchain is called distributed because the software that controls the ledger exists on all the core computers which are called nodes. The number nodes depend on the specific blockchain’s design. Each node contains both a copy of the software and a copy of the entire blockchain. The transaction integrity is validated through software that exists across all of the blockchain nodes. If it passes all tests, it is added to a “block” of approved transactions. That block of transactions then must further pass through a consensus mechanism to validate the block, and the approved blocks of transactions are then appended to the end of the “chain.”
Each approved block on the chain is linked to the next block using a cryptographic hash of the previous block, a time stamp, and the actual transaction data. The cryptographic hash for the original blockchain is based on a SHA-256 algorithm that was developed by United States National Security Agency (NSA) in 2001. This hash algorithm ensures that that you can only append to a chain. You cannot edit or delete a transaction on the blockchain. In other words, the blockchain is immutable.
What is a Smart Contract?
In addition to the software to run the blockchain, additional software programs can be put on blockchain nodes called smart contracts. Smart contracts allow trusted, self-executing transactions on the blockchain that do not require a third party as intermediary. For instance, you can setup a smart contract that automatically pays 50% of every newly purchased CD directly to the band, 25% percent to the producer and 25% to the online store. In the current environment, that same transaction would have to go through dozens of intermediaries, and the band ends up with a fraction of that revenue in the end. One addition critical element that makes blockchain unique is the ability to solve the “double spend” challenge. The way transaction integrity is managed across the nodes does not allow for a single token to be fraudulently sold to multiple people. Another way to view this is an item or a fraction of an item on the blockchain can only have one owner. It is easy to see that this type of efficiency is powerful and potentially disruptive to the layers of “middle men” that currently are involved in business today including banks, brokers, and agents.
To see more publications by Scott Mairs visit: www.pmi.org