The three key things you need to know about blockchain technology
Blockchain is a form of distributed ledger technology that burst onto the scene when cryptocurrency bitcoin was introduced
In the field of accounting, a ledger represents the principal book or record that provides a permanent summary of all transactions based on currency or other unit of account.
It has separate columns for debit and credit, as well as a starting and ending balance for each account.
These have existed for thousands of years, arising from the time when people started trading goods and services, and needed to keep records of transactions.
A so-called distributed ledger is collectively maintained by all those taking part in such a system, rather than by one central authority or clearing house.
Whenever a transaction takes place, this information is shared between system participants and added as a new ledger entry.
Blockchain, a form of distributed ledger technology, burst onto the scene when cryptocurrency bitcoin was introduced by its pseudonymous inventor, Satoshi Nakamoto, through a technical paper published in October 2008.
Information for this explainer was gathered from an interview with Paul Tomes and Nick Murray, the co-founders of start-up PassKit, and from a Hong Kong Applied Science and Technology Research Institute white paper on blockchain, which was commissioned by the Hong Kong Monetary Authority.
What is a blockchain?
Simply put, a blockchain is a distributed online database of transactions that multiple parties share and everyone can trust. Each participant in this blockchain network maintains their own copy of that database, or collection of organised information.
A blockchain, which provides a protocol or arrangement for building a shared and replicated online ledger network, makes constantly available for examination a full audit trail of transaction history.
In terms of structure, it is made up of a series of “blocks” of information that are securely chained together. Any given digital record of an asset, be it a copy of the title deeds of a bricks-and-mortar property or a virtual commodity, can be stored in a block.
New blocks are formed whenever participants create or change a piece of information about an asset, such as changes of status, new market prices or new owners.
What makes a blockchain secure?
Transactions on a blockchain database are processed one at a time. The next transaction will be a different “write” or “read”, but only after the preceding transaction has completed or failed. Each write to the dabatase is considered a block.
Before a block can be committed, all participants are required to validate the transaction and provide consensus that such a block can be added to the chain.
Since all records are chained together, all records are immutable. It is impossible to alter a previous record without changing the copy of every participant in the blockchain.
How does blockchain ensure privacy?
Personal data and identifiers are not required to be specifically stored in the network. The system transforms information, such as name, telephone number, email address and passwords into a numeric value of a fixed length, called a hash value in computing terms.
That data is hashed to provide a unique token that can be quickly indexed and retrieved in a database, but makes the user practically anonymous to all parties within the chain.