What Is Blockchain Technology & How Does It Work?
The advent of blockchain technology has seen a lot of press in recent times. Most of us know about this technology through media reports on cryptocurrencies like Bitcoin or Ethereum, but the blockchain is more than that. It offers benefits that help all sorts of data-related industries in various ways. This article will explore this emerging tech and how it affects us.
What Is Blockchain Technology?
Blockchain is a data transfer and record-keeping system that uses “blocks” of data or data packets to store a ledger of transactions or information. These data blocks lock together in a chain, which constantly cross-references itself in real time. Think of it this way: Instead of having a single database people log into and check, the blockchain is an infinite network of data packets visible to everyone connected to the network at any time.
The network uses mathematical verification to lock each block in the ledger. Each block is connected to the others and so any changes or corrupted information is automatically seen by all the other blocks. The users in the group each share and verify the data in the entire blockchain, making it a truly decentralized data transfer system.
How Does Blockchain Technology Work?
To access a blockchain network, a user will be given a public key visible to everyone and a private key visible only to themselves. These two keys combine to create a secure, anonymized identity that allows you to participate in the network.
Each of these keys is a node. Each node will automatically receive any new “blocks” added to the chain — either most or all of those nodes must accept this block for it to be valid.
You might be familiar with Google Drive and Google Docs. With these, a file is in the cloud and users can access and change it —provided they have been given access. The file is stored in one place and users connect to that file. This is a centralized system.
In blockchain, that document exists on everyone’s computer all at once and is locked and secured to the rest of the network. When one change happens on one node, it’s automatically transmitted to all nodes, who can then verify or reject that change. Each change and transaction is time-stamped and tracked. That is a decentralized system.
Encryption technology helps protect the security of the blockchain and also allows the network to be viewable by all its members without actually identifying anyone. Each change or addition in the ledger is given its own hash, which helps verify that data block. A hash is a system of numerical information, including the timestamp, public key, private key and data information. Hashes drive the verification system in most blockchain networks.
How Blockchain Prevents Tampering
Every node in any blockchain network has a system of hashes that identify and verify the data. If one node has a different version of that data, all the other nodes automatically know it doesn’t match and prevent it from being added to the network.
Types of Blockchain Networks
Public Blockchain: On this network, anyone can join and participate in the blockchain. Users can then mine for data. Mining is based on the hashes system and cryptography. When users solve complex mathematical problems with the hashes, they unlock the ability to update and add the next ledger and add their own transactions to the chain. There’s usually a reward for solving these problems, which is where miners “earn” Bitcoin or other cryptocurrencies.
Private or Permissioned Blockchain: In a private blockchain, the network is limited to a few users. The blocks themselves work the same as a public blockchain, but users have to be allowed access by either one central authority or a consortium. Private blockchain technology use cases include share distribution record keeping for companies with private shareholders, asset management or even internal voting for organizations. This is also a good system for collecting and storing records of electronically signed documents.
Hybrid Blockchain
Some systems link a private and public blockchain together. The private system has one central admin which controls access, while the public system lets third parties join and access certain data. These systems don’t have transparency, but they do allow companies to share some information with third parties while keeping other transactions hidden.
Is Bitcoin Blockchain?
Bitcoin is often used interchangeably with blockchain, but that’s not really accurate. Bitcoin is one example of a blockchain network and runs on blockchain technology. It is the first real-world example of blockchain technology in action as a financial system.
Blockchain technology in the form we know it today has been around since 2008, when Satoshi Nakamoto, an entity claiming to be a 47-year-old coder from Japan. There is some conjecture over the true identity of Satoshi Nakamoto, who may be a team of people, one person using a pseudonym or exactly who they say they are.
Nakamoto came up with the system of hashes. Hashes are the public/private keys that form the nodes of a blockchain network. This is what allowed blockchain to propagate and become mainstream. It was Nakamoto who first invented Bitcoin and bought it into the light when he published a whitepaper on Bitcoin and blockchain in 2008.
Features of Blockchain
Bitcoin is a compelling tool for new financial systems and other important record-keeping processes because it is highly secure, difficult to tamper with and fast. Some of the benefits of blockchain technology include:
Immutability
Immutable means that a transaction cannot be changed. The blockchain records every single transaction with its own unique timestamp and identity. The previous chain of transactions remains locked.
This raises the question, what happens if there’s a mistake in a blockchain ledger? For example, if you perform a transaction by mistake. This mistake can really only be changed by adding another block that reverses the mistake. Both of these transactions remain visible in the chain, which enhances transparency.
Decentralization
We mentioned this above, but because the data is spread across multiple nodes, there is no point of failure or access point for would-be hackers. The blockchain doesn’t require one authority, which means two parties can conduct a transaction without an intermediary. The network itself verifies any new blocks added to the chain.
Enhanced Security
Not only is there advanced encryption software behind blockchain technology, but the public visibility of the ledger and change records in the network make it nearly impossible to tamper with. Transactions are tracked, recorded and verified across every single node in the system, which makes them almost completely tamper-proof.
Uses of Blockchain Technology
The most common use of Blockchain technology is in cryptocurrencies like Bitcoin or Ethereum, but there are other ways to use this technology. Blockchain technology uses include:
Electronic voting: There are two main benefits of blockchain technology: It is highly encrypted and private and it allows anyone connected to the chain to independently review and verify the ledger of data transactions that happened. This makes blockchain a good candidate for e-voting because it provides both privacy and reliable verification.
Healthcare record keeping: Blockchain protects its users’ identity, allowing medical professionals to record data and keep the patient’s identity safe. They can also share this information with anyone with access to the blockchain key.
Contracts: Blockchain can be used to sign and execute contracts. It is highly secure and doesn’t require intermediaries to verify the contract terms. If both parties agree, then the contract is executed and a block that represents that contract is added to the chain. This is where electronic document signing comes in.
How Blockchain Technology Benefits Electronic Document Signing
Electronic documents benefit from blockchain technology in many ways. These include:
Security
Electronic document signatures backed by blockchain technology are timestamped, tracked and irrefutable. Blockchain hashes make it nearly impossible for anyone to alter a document after it has been signed.
Audit Trail
Every time the document is opened, copied, signed or otherwise altered, that movement is first verified across the entire network and then stamped and verified. This also gives you a perfect audit trail to fall back on in the future.
This makes it easier and safer to electronically sign documents for everything from real estate or financial transactions to contracts between companies, employers and their staff.
Speed and Real-Time Processing
Not only that, but blockchain technology allows you to verify documents quickly. You don’t need to wait for a third-party to review or notarize your documents; the network completes the verification in real time. You can even set up push notifications to know the minute your document is signed and executed, so you have an instantaneous settlement.
Trust Blockchain To Protect Your Electronically Signed Documents
Blockchain technology is a great way to record and track important information. The benefits of a decentralized system for verifying data help add a layer of security and trust to your documents that more traditional databases can’t. When you set up a digital signature using blockchain technology, you get a safe, private and trustworthy e-signing tool that keeps your documents and your identity protected. Contact jSign today to set up your convenient and trusted e-signature.
