Blockchain: The Foundation of Trust for Cryptocurrency

You may have noticed that cryptocurrencies like Bitcoin have taken off this year. Their market capitalization went from about $18B in January 2017 to more than $110B in June. The foundation of such digital currency is built on a technology called ‘blockchain.’ This is the foundation that enables users of the digital assets to trust that the asset actually exists. In other words, it establishes trust in an otherwise most untrustworthy environment, such as the internet. How does it do that? Blockchain can also be described as ‘distributed ledger.’ The ledger of transactions in a blockchain is public; anyone can see them. You can’t see details (such as people’s names), but the transaction itself is public. For Bitcoin this basically means that amount ‘X’ was transferred from ‘wallet A’ to ‘wallet B.’

Blockchain technology establishes trust by having computers equipped with lots of processing power (aka miners), to validate that information in the chain has not been tampered with. The motto is ‘easy to validate, hard to break.’ As transactions are recorded, they are written into blocks of data that are pre-determined sizes. Once the block is filled, it is encrypted so the contents of the block can’t be read or modified. A hash is then generated from the encrypted block and written into the header of the next block. This is the part that creates the ‘chain’ in blockchain. Now that the hash is written into the header of the next block, if anything is changed, the hash won’t match – effectively breaking the chain and making it blatantly obvious that data has been tampered with.

The blockchain itself is stored in full on millions of computers around the world. These are the miners responsible for validating the data in the chain and adding new transactions to the blocks. The reason for so many copies of the blockchain is so if someone does manage to crack the encryption of a block and change data, it would immediately be detected by the rest. They would form a ‘consensus’ saying that block of data was tampered with, and overwrite it. The ‘consensus’ part is just as important to the trust as the encryption.

With this, in order to modify the blockchain at all, you would not only have to crack the encryption in the block you want to modify, but all of the blocks that come after it, too, as they each have their own key. Then you would have to convince millions of computers scattered all around the world to form a consensus around your modified version of the blockchain. Considering it would take over 1 trillion years to crack that first block, and new blocks are constantly being added, this task is effectively impossible… at least until quantum computers enter the mix. This won’t be for some time, but there are already blockchain technologies that use quantum entanglement to thwart an attack, even by quantum computers.

The implementation of blockchain will bring trust to areas that are currently untrusted. It will continue to expand outside of digital currencies as well. This technology can be used to validate anything from ownership of real property to your online identity or trade between corporations. In the near future, online deception will be as scarce as trust is today.