Originally the basis for recording transactions with cryptocurrencies such as Bitcoin, the blockchain has evolved into something of much more significance in the 21st century. It has the potential to change fundamental principles of networking.

In its simplest form, Blockchain is a decentralised record of information that is controlled and updated by a community of users. There is no central entity or person who controls the record. According to Don Tapscott who wrote the Blockchain revolution

The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.

Many people may not be interested in the mathematical disciplines that underline blockchain technology. However, it is indeed helpful to have a high level understanding of what blockchain does and how it will help the world move to the next internet revolution.

The Client Server Model

Traditionally, the World Wide Web has worked on the client-server network model. A user, in this case the “client” will connect to a centralised server and get hold of the information that was required.

This server is usually a computer in a data centre that has access to all the information that the clients want to access. The server will also hold the database on its hard drive. This is only one copy of the database and hence can be considered the “master copy”. Many companies including banks, insurance companies, healthcare providers, media companies etc. have to oversee this centralised database. Below is a visual example of the client server model.

Client Server Architecture

If there are any changes to information on the database, this is either managed by the clients (users) themselves or updated by the administrators of the server. Having all of the information in only one location can have numerous drawbacks. The most pressing of which is cyber security.

Due to the fact that hackers know where the server is located and that the data lies only on one server, it makes it an easy target. The client-server networking infrastructure is also more prone to breakdown as a outage on the one server will mean that no one can access the database from the clients. This can be damaging especially when access to the database is crucial.

A Decentralised Solution

Blockchain technology, at its core, is a decentralised version of the client-server model. Instead of having all of the data and information in one server that is accessed by the clients, rather place that information onto all of the clients. These client computers are then termed “nodes” and form part of the decentralised network.

When there is an update to the network, each node on the blockchain will update the distributed ledger and make sure that there is consensus among all the nodes as to the true form of the ledger. Consensus is formed when the majority of the nodes agree on the current form. This is all shown in the below image of a distributed ledger.

Blockchain Technology with Nodes

This is what makes blockchain technology so revolutionary, there is no need for a central authority of trust. Each of the network nodes can authenticate the entries and through defined mathematical and economic disciplines, each node is trusted by the others. If there is a redundancy in anyone of the nodes then there should be no impact on the network or ledger.

Moreover, given that the blockchain is maintained by all of the nodes on the network, no one party can maliciously alter it without the knowledge of the other nodes. Even if this is the case, the ledger requires consensus in order be updated effectively. This makes the blockchain transparent and incorruptible.

Trust through Cryptography

In order for nodes in a decentralised network to trust each other, they have to make certain that they are indeed who they say they are. They key concepts of authentication and permission are central to the functioning of a blockchain.

How does one achieve this with 100% accuracy?

It is achieved through the use of private key cryptography. It allows a network node to prove that it is indeed who it claims to be and that it has the authority to do what it does. This private key is nothing more than a collection of digits and letters and hence is private. There is no requirement of private information to prove authenticity.

It is also not enough for the nodes to be merely authenticated and authorised. The underlying protocol to the blockchain requires economic incentives for being “honest” as to the true nature of the blockchain. With Bitcoin, for example, network nodes (miners) are rewarded with Bitcoin for authenticating transactions and keeping the network honest.

Trust is indeed a commodity which is in short supply and requires a lot of resources to confirm. In the past, confirming that another computer on the internet could be fully trusted was a laughable concept. Through the use of these strict cryptographic and game theory economics disciplines, powerful digital relationships can be formed.

Although blockchain technology is mostly associated with digital currency, the potential applications are indeed revolutionary.

Potential Blockchain Applications


We are all aware of crowdfunding platforms such as Kickstarter and Gofundme. You will create a page that attempts to raise money from retail investors for really small investment tickets per investor. With blockchain technology, the opportunities are endless.

For example, investors can purchase into an organization that will act as a large decentralised venture capital fund. They can then purchase the right to vote on potential investments through the smart contracts that are coded in. This is indeed what the DAO (Decentralised Autonomous Organization) was. Although this did suffer a hack, the idea was no doubt impressive.

Smart Contracts

Smart contracts form the basis of the Ethereum network. Essentially, they are lines of code that will execute the smart contract on the network if certain conditions are met. These can be programmed to perform functions when particular characteristics are met. This makes smart contracts applicable to numerous applications.

For example, if you were to sell a house and needed to pay money subject to a number of conditions being met, instead of the use of lawyers you could use a smart contract. Instead of confirming transfer of funds on particular documents being received, let the terms be coded into a smart contract. Essentially, any form of complicated financial transaction can in theory be coded into a smart contract.

Management of Supply Chains

Supply chains are large and complex chains that are sometimes cumbersome. This makes it hard for the organisations that rely on them and can lead to wastage etc. By placing the product supply chain on a public blockchain, potential glitches can be spotted more frequently and in a much quicker time frame. All parties to the supply chain including consumers can track the movement of the goods.

It also prevents any nefarious actions or corner cutting by any of the suppliers in the chain. Due to the fact that their actions are indeed public, other members in the chain could spot this activity.

Data Protection

As mentioned previously, having all of your data stored in a centralised location can make you an easy target for hackers. The past two years have shown us the catastrophic impact of data breaches at a number of companies and government organisations.

With blockchain technology, the nodes are all spread out across the network and hence are harder to compromise. A potential application of the technology could be on the DNS system. Given that these rely on caching, they are vulnerable to DDoS attacks. There is no need for caching when blockchain technology is used.

Digital Identities

Nearly everything we do online makes use of our identity. Websites and services need to authenticate exactly who we are in order to assist us better. Of course, this can be inefficient and dangerous. Hackers usually target consumers with phishing tactics in order to get personally identifiable information.

Distributed ledgers allow us to a more efficient and secure way of identifying who we are. Blockchain also hands back control of our personal data to us without having it stored in a central location. Moreover, when this digital identity is stored on the blockchain it is immutable which means that no one can alter it for malicious purposes.

Data Storage

Space is an increasingly sparse resource which we often run out of. However, across the internet there are millions of computers that have extra storage space that is not being utilised. This is essentially a wasted resource that one is not making the most use of. Moreover, when you make use of cloud storage solutions such as Dropbox, they can and have been hacked as they are centralised.

A decentralised blockchain solution to online storage is the only way that we can take advantage of this unused space in a secure manner. For example, a recent ICO of Filecoin raised a record of $257m for its decentralised storage concepts. They will no doubt be happily be taking on the established giants in the cloud storage space.

The Sharing Economy

There is great potential for the use of Blockchain technology in the sharing economy. From AirBnB to Uber, there is scope for growth with decentralised solutions where those who want to share something can match up with those who are doing the sharing.

Similarly, there is the opportunity for platform co-operativism. This means that those who intend to use the platform and those that profit from it can be the same individuals. This can encourage users to make sure that the decentralised platform works to the benefit of everyone.

Web 3.0 Revolution

Many people have compared decentralised networks to the third version of the internet. Internet 2.0 was the “internet of information”. People had at their fingertips all of the resources that would usually require a large amount of time to locate. Blockchain technology is now the first step that we are taking towards Web 3.0 or the internet of value.

Images via Fotolia

Posted by Crypto Pro

Blogging about the latest cryptocurrency news and insights to hit the wires. Editor at the Coin Bureau