What the **** is blockchain?

Yes, we know you’ve heard of the most revolutionary technology to hit finance since the abacus. But do you actually know what it’s about? Relax, as Magpie has demystified it for you.

1.

Essentially a blockchain is a type of database. A network of “blocks” acts as a digital ledger, making a permanent record of any transactions that are completed across that network, which is public. The ledger can’t be edited without an enormous amount of computer power.

WHAT’S THE LINK BETWEEN BLOCKCHAIN AND BITCOIN?

Bitcoin is essentially payment for adding transactions to blocks in the chain. Computers across the network verify, then record transactions on each block by solving mathematical problems. This process is commonly known as “Bitcoin mining.” Miners receive their payment for completing these problems in Bitcoins.

Across different networks alternative cryptocurrencies are used, like Litecoin and Ethereum.

2.

The information held on each “block” isn’t kept in one place. Instead, it is held by many, many computers simultaneously. Every 10 minutes, the network reconciles each transaction that has occurred across every computer in this period and creates new blocks as needed.

3.

You’ll have spotted by now that, at root, blockchain is just another way to store data. But people are excited about it because it’s the new frontier of secure information sharing and data storage. As every transaction is recorded across the whole network, everyone accessing the network can see what has happened – but won’t be able to corrupt the data. Which makes it fantastic for keeping records public that can’t be tampered with.

4.

That said, a blockchain network doesn’t have to be visible to the whole world. Organizations can make private networks that are only accessible to people who have a private key. This means that the technology can be adapted for a wider range of business uses.

BLOCKCHAIN! HUH! WHAT IS IT GOOD FOR?

NOT ABSOLUTELY NOTHING AS IT TURNS OUT…

Bank Transfers

Using blockchain provides a secure, traceable and instant way to transfer funds to another party, eliminating the need for an intermediary – which, in the case of a bank transfer, is the bank.

Micropayments

Making payments is an expensive business, a fact which has inhibited the take-off of micropayments – effectively recipients lose money as they spend more on bank fees. By sending transactions directly via blockchain and cutting out the banking middleman, micropayments could become commonplace.

Lending Money

Peer-to-peer lending can be a scary prospect as it requires total trust, so a middleman is usually introduced to defuse these concerns. But as blockchain allows transactions to be made directly between two parties, this minimizes the amount of trust needed – and creates an open, permanent record of the loan.

Proving asset ownership

Blockchain makes it possible to trace the entire ownership history of an asset – and as the chain can’t be edited, it’s definitive. Startups such as Provenance (provenance. org) are attempting to do something similar for physical products.

Trade stocks and shares

Theoretically, blockchain could have a huge impact on buying shares. Record keeping, audits, transferring assets and trade verification can all be performed with the technology, and intermediary fees would disappear – trades would be faster and more secure. Blockchain could also provide a place for initial public offerings – an alternative to the stock exchange, where companies could instead list tokens for people to buy.