(CNN) – You’ve almost certainly heard the term blockchain. But you probably have no idea what it is or how it works, let alone why it generates so much hype. That’s OK. Most people don’t.
That hasn’t stopped it from becoming a buzzword tossed around in almost every industry, from finance to shipping to fantasy football. A-list companies like Amazon, Facebook, IBM and Walmart believe that blockchain technology can track shipments and store data more efficiently, among other things. You are not alone when it comes to technology that many believe could revolutionize logistics, food safety, banking, and even voting.
Not bad for an esoteric technology developed by the enigmatic figure who created Bitcoin.
Of course, none of this answers your question: what is blockchain?
A public digital ledger
A blockchain is essentially an immutable public digital ledger. Once someone enters a transaction, it cannot simply be changed. An analogy might help explain how it works.
Think back to the time when people used a checkbook register to keep track of purchases and payments. Now extrapolate this into the countless transactions of millions of people and imagine that copies of the registry are held by thousands of computers. Every computer must review a transaction before it can be recorded in the registry. Once verified, a transaction is written in permanent ink.
The registry records transactions for a specified period of time, which can be as little as 10 minutes. Once the register is filled, it is stapled and labeled with a unique alphanumeric sequence that identifies it. A new register is then started and glued onto the first. Finally, you have a chain of registers.
That is essentially what a blockchain is. The fact that these registers are stored on many, many computers makes them essentially immutable and unhackable. To continue with the analogy, you’d have to work backwards and solve each checkbook until you get to the one that contains the transaction you want to change before making the revision. And you’d have to repeat this process for each copy of the register. They couldn’t do it without being noticed.
The biggest benefit to public blockchains is that once the information is logged, it cannot really be changed. There’s a permanent record, and since the ledger is kept by many companies, it’s almost impossible to hack.
The entries are also made using pseudonyms, so that a certain level of data protection is guaranteed and no one has full authority over the ledger. This makes blockchain ideal for Bitcoin and other cryptocurrencies.
And many other things – although people disagree on how effective it will be for certain uses.
A short story
The person or individuals behind the technology developed alongside Bitcoin bears the presumed pseudonym Satoshi Nakamoto. Nakamoto, an enigmatic figure who has proven nearly impossible to identify, wanted a decentralized, permanent, and public means to record the creation and distribution of every bitcoin. Today, blockchains underpin a staggering number of cryptocurrencies.
So far, people have mined more than 18 million of the 21 million bitcoins that will ever exist. Every one of them and every transaction that uses them has been recorded on a blockchain. This gives you an idea of the amount of data the technology can handle.
Although Nakamoto designed blockchain as a public ledger, it wasn’t long before entitlement-supported blockchains appeared, controlled by a specific company or group. They do not offer the same level of immutability because they are stored on a far fewer number of computers. And despite the hype, the thinking behind them isn’t new.
Permission-based blockchains are 20 year old ideas, said Nicholas Weaver, senior researcher at the International Computer Science Institute. “If someone says ‘Private Blockchain’, just mentally replace that with a Google Doc that can only be updated.”
Businesses use blockchains to do a variety of tasks, such as: B. manage pharmaceutical information, track freight shipments and track the origin of food. Every application touts the ability of blockchains to keep a complete record of data in a system that cannot be easily changed.
Still, some people question the usefulness of the underlying technology. Sure, it’s great for cryptocurrency. But critics deride the idea that it will revolutionize everything. “Someone who says blockchain can be used to solve Problem X doesn’t understand Problem X,” said Weaver.
He cites the popular example of using a blockchain to track the production and distribution of food. Proponents say this would improve safety and make it easier, for example, to identify the source of a salmonella outbreak. It would be a lot easier to use RFID chips or QR codes, he said. Such technology provides a more reliable record because there is no need for a person to manually record the data in the general ledger. This process invariably leads to human error.
However, Catherine Tucker, a professor at the MIT Sloan School of Management, sees enormous potential in blockchain technology. She sees blockchains as most useful for managing digital currencies and tracking health and insurance data.
“I think we can all agree that the way we store and record data has not changed in the same way that other aspects of our use of digital data have changed,” she said. “It makes a lot of sense to identify better technologies for recording data and its integrity.”
Tucker said that it is important for early adopters of blockchain technology to remember that technology “evolves” and that companies shouldn’t just adopt it in order to use it. Instead, they should make sure they really need the technology, and once they adopt it, make sure they adapt to change as it evolves, she said.