Traditional information systems, such as a central bank, look like the hub and spokes of a bike wheel. One central node distributes information to other nodes at the end of the spokes. With just a few entry points, this “centralized” system is vulnerable to hackers. If the central node is corrupted, the information stored in the other nodes is also compromised through the single point of entry.
Blockchain represents a new way to store and manage data in a “decentralized” system. More like a fishing net that a bike wheel, the blockchain stores information across a network of computers. Information is distributed directly from node to node, with no central authority acting as the intermediary. While this increases the points of entry into a system, it lessens the potential for the entire system to be compromised if one of the nodes is hacked.
Indeed, there would have to be collusion between more than half the people managing nodes in a blockchain to corrupt the entire database, explained Patrick Maguire, marketing director of Tampa’s Pocket Network . However, collusion would require a tremendous amount of effort to build consensus among a vast network of stakeholders in the blockchain, making the scenario highly unlikely.
Blockchain’s distributed ledger system also functions like a sharing economy by enabling peer-to-peer transactions. In the context of ride sharing, for example, blockchain could enable riders and drivers to connect directly with each other without the use of an aggregator like Uber or Lyft. This shift in the way we process transactions would help riders find drivers faster and increase drivers’ net pay, since they would no longer be sharing revenue with the aggregator.
The same could be true for any application that enables peer-to-peer sales of a product or service, which is why the model is appealing to individual sellers.
Blocks cannot be altered once they are added to the chain, making it nearly impossible to modify or tamper with a blockchain. Furthermore, individual blocks are encrypted with information about their transaction history. It would be impossible to alter a block in the chain without also altering its entire history – an in-depth process requiring so much time and effort that hackers are usually deterred.
Immutability translates not only to information security but also into accountability, explained Orlando’s IntelliLaw Founder and Managing Attorney Anessa Santos. For example, it would be futile for a government entity that recorded its transactions on a blockchain to try concealing nefarious spending, or assign false values to budget line items.
Finally, if you thought blockchain and cryptocurrency were interchangeable, think again.
“Blockchain does not equal cryptocurrency,” Santos said. “The property of attaching a coin to a blockchain is an option… There are a lot of things you can do with a blockchain, just like there are a lot of things you can do with your phone.”
It is common to conflate blockchain with cryptocurrency and to overemphasize the real-world impact of the latter. According to a 2018 Investopedia report, only 8% of initial coin offerings reach the trading stage on the various cryptocurrency exchanges – and only 4% are deemed promising or successful.
Click below to watch the Institute for the Future’s video, “Understand Blockchain in Two Minutes.”