Block Chain – What you Actually Need to Know
There’s no doubt about it, Block Chain is confusing! If you aren’t looking to become the best at hashing, or to invest millions into the cryptocurrency circuit, all those minute details probably aren’t what you wanted to know about in the first place.
For the every-day person, we just want to know what the problem is and how this will solve it.
The initial concepts of Block Chain technologies are not new. In fact, early records of currency and trade date back as far as 500AD in Micronesia, where large stones called Rai Stones were used to monitor transactions. The stones were too heavy to move but each had separate markings. The markings and locations of the stones identified the owners and everyone in the community knew who owned what stone and what its value was. When a transaction occurred, the participants announced it to the community and a trusted bookkeeper in the community recorded the transactions. In current banking, the trusted bookkeepers are the financial institutions we use, and both share the common problem of susceptibility.
Thus, to the every-day person the problem is vulnerability. The solution is Block Chain.
In this article, we’ve identified the 3 current problems in the security of today’s financial systems and have outlined how Block Chain technologies can help outsmart them:
- Accessibility: As a large and single entity, the centralized database of a financial institution is an easily identifiable, solitary location known to contain personal and confidential information that can be directly linked to the owner. This makes it an appealing and fairly easy target for high-scale hackers. Every transaction we make is recorded in the database which can be accessed by any authorized user who has a user-generated login name and password, which often contain notable names or numbers, and can easily be reset. Block Chain technologies use unique 20 digit codes to identify a person online which cannot be traced back to the actual given person. These codes are also given to transactions in what are known as hashes. Hashes are mathematical formulas that will generate a single known result and are incredibly difficult to produce – so difficult, in fact, that the average hash takes 10 minutes to solve and requires very expensive technologies, where the costs would outweigh the benefits for one single user. Instead, thousands of miners spend hours randomly guessing the codes, competing for incentives given to the person who solves (guesses) first where it is then sold in the form of a block. The only people that know the formula are the people that own the complicated hash.
- (De)Centralization: All information for a financial institution is stored in one place. If someone finds it and gets it, they are all of a sudden privy to everything they would ever want to know. All the records of the bank could be stolen and modified. Also consider if something happened to that database (weather, power outage, shortages, for example) – all that information would be gone. When a transaction that affects the Block Chain takes place, it is publically announced and recorded by a large network of people who all record the same information in their own digital ledgers. By regularly comparing records, any modifications be quickly detected and immediate measure would be taken to fix the situation.
- Concreteness: Every transaction is recorded in the centralized ledger. If accessed, this ledger could be modified to delete transactions, double payments, transfer accounts just to name a few. As the sole point of entry of these transactions, the modifications would go undetected. Each transaction, or block, in the Block Chain is given a specific hash, or code. Once verified, the block is entered into the digital ledger in an order decided upon by a consensus of the network. Not only does each block contain its own hash, it also contains the hash of the previous block in the chain. If the information in one block were to be modified, its hash would be modified, and the rest of the blocks in the chain would be rendered invalid. On top of that, Block Chain uses a network of volunteers or “Miners” who receive incentives for participating. It is the job of these miners to monitor and record transactions in each of their own ledgers. Remember, these transactions would be recorded using their own specific codes and would not allow them to know who, where, or what purpose they were for.
The solutions offered by Block Chain technologies are exciting, and certainly have much more capability beyond the financial industry. In a network where the participants can monitor their own actions and consensual agreement is required for anything to occur, this new wave of trade and interaction has already been attributed to a new field of economics and we’re excited to see how else these advancements transform the rest of the world.
VTRAC Wants to Know!
What do you think are the best aspects of Block Chain technologies?
How do you see Block Chain becoming part of every day lives?