Bitcoin may be the talk of the town, but how much do you really know about the technology behind it? We’re going to bring you up to speed today with everything you need to know as we answer the common question on how does blockchain work. The technology not only functions as the backbone of cryptocurrencies, it is also functional well outside of the crypto and financial sectors.
What is blockchain?
As we mentioned earlier, blockchain serves as the backbone of cryptocurrencies. While the world was formally reintroduced to the new and improved version when Bitcoin was launched in 2009, the technology had a few appearances before then, but more on that later. In a nutshell, blockchain is the transparent and immutable storage of data that is kept in chronological order and cannot be tampered with. While blockchain technology can be centralised, it generally functions off of a network of nodes (computers) that verify and then store the data necessary.
Using Bitcoin to illustrate this point, each transaction is verified by a miner on the network and then added to a block. The block is then added to the blockchain straight after the previously mined block and shared with every node on the network to record it. Each block has its own hash, and when a new block is added it too holds the hash of the previous block so that everyone on the network knows it is in the correct order.
History of blockchain
Blockchain has actually been around since the early 90’s, an initial version of it anyway. In 1991, two computer developers Stuart Haber and W Scott Stornetta created a version of blockchain that was used to timestamp and store office files. The initial version was created to be immutable, meaning that no one could go back and change or tamper with the entries. In 1992, the team incorporated Merkle trees which allowed more documents to be stored in one block.
While brilliant at the time, the technology didn’t really catch on, although it is believed to have caught the attention of a mysterious Satoshi Nakamoto. While his/their identity remains a mystery even to this day, it is believed that the developer/s were aware of this technology at the time, and spent years trying to adapt it to a more worldly usage.
It all came together in 2008 when Satoshi Nakamoto published the Bitcoin whitepaper, outlining how the peer to peer payment system would operate on blockchain technology. Nakamoto had solved the double spending problem by making transactions irreversible and incapable of being used from the same address twice. In 2009 Nakamoto mined the first Bitcoin block, known as the genesis block, which set in motion the first real use case of blockchain technology as we know it today.
Blockchain 2.0
Bitcoin was designed to be open sourced, allowing anyone to recreate and develop their own version of the blockchain behind it. This allowed for a lot innovation in the crypto space, and a certain Ethereum network was very much on point with this. Ethereum developed their network to allow for the building of decentralized applications (dapps), as well as the creation of smart contracts. This created what is known as blockchain 2.0, which looks at blockchain being used in industries outside of the crypto sector.
Several other networks started offering dapp creation, as well as smart contract development. Smart contracts are digital agreements that are executed once the predetermined criteria is met, requiring no third party. This was discovered to be particularly useful in many industries, especially supply chain management. Many big corporations are starting to incorporate blockchain technology into their supply chains to offer customers a more transparent look at their products, and to help flag crises before they blow up.
In April 2018, Walmart experienced an outbreak of E.coli in their romaine lettuce, and quickly pushed all suppliers to adopt IBM’s “Food Trust Solution,” which uses blockchain technology to securely and in a transparent manner track the produce from farm to shelf.
Blockchain Is The Future
Blockchain has since been incorporated into businesses around the world, with many large corporations exploring it in their businesses as we speak. In answering how does blockchain work, one must remember that this technology can be adapted to suit everything from supply chain management to farming to finance, as well as everything in between.
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