Blockchains are best known for their importance in cryptocurrency systems such as Bitcoin. Their role is to keep a secure record of transactions. What’s so revolutionary about blockchain technology is that it ensures the allegiance and security of a data record and generates trust without the need for a trusted third party like for example a government agency.
The data is structured differently than in a traditional database. A blockchain collects information in groups referred to as blocks, which hold bundles of data. When a block's storage capacity is reached, it is closed and linked to the previous filled block, forming a data chain known as the blockchain. All new information is filled into a new block, which is then added to the chain once it is complete.
There is a good comparison that explains how blockchain technology works - Google Docs. When we make a new document and share it with other people, we are distributing the document, not copying, or transferring it. This provides a decentralized distribution chain in which everyone has access to the document at the same time and all changes to the document are logged in real-time, which makes them entirely transparent. Undoubtedly, blockchain technology is not as simple as Google Doc, but it’s a good example for an easier understanding of the basics of this technology.
Overall, the blockchain evolution has been steady and promising. Two research scientists, Stuart Haber, and W. Scott Stornetta described blockchain technology in 1991. They intended to provide a computationally realistic approach for time-stamping digital documents to avoid backdating or tampering. They created a system for storing time-stamped documents that employ the concept of a cryptographically secured chain of blocks. Merkle Trees were added to the design in 1992. This allowed multiple documents to be collected into a single block, which essentially made blockchain technology much more efficient. In 2004, Hal Finney, a computer scientist and cryptographic activist, introduced Reusable Proof of Work (RPoW) as a prototype for digital cash. It was a significant early step in cryptocurrency history. Later in 2008, Satoshi Nakamoto also construed the theory of distributed blockchains. His improvements allowed blocks to be added to the initial chain without having to be signed by trusted parties.
Benefits and Disadvantages
Unlike a regular database where you get a snapshot of data up to date only at one moment, blockchains record also all the data from before. Another benefit is that it is extremely secure due to its decentralization, there isn’t a way for hackers to attack this database. Lastly, it’s the fact that there is no need for a central administrator, meaning lower costs.
However, just like everything else, blockchain technology also has its disadvantages. A major one is the environmental impact of such database. Blockchain relies on encryption to provide security across a distributed network. This essentially means that in order to "prove" that a user has permission to write to the chain, complex algorithms must be run, which requires a significant amount of computing power. This, of course, has a cost. Using Bitcoin as an example, according to Futurism the computing power required to keep the network running last year consumed the same amount of energy as 159 of the world's countries.
Real Life Uses
Blockchains are now being used to create a secure, decentralized way for service providers and customers to connect and transact safely and directly. For example, Uber and Airbnb are using these services to cut out the “middleman”.
Another example is when hospitals use blockchain to keep track of patient records, their progress after they leave the hospital or even to keep track of a disease outbreak to prevent pandemics such as we are experiencing right now.
All in all, blockchain technology is still in its beginnings and seems to have a bright future. It seems like in the future we can expect to see blockchains used in a much bigger range.