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You've probably heard the word “blockchain”, whether on the news or in casual conversation, and how it's the so-called wave of the future. But you may still be fuzzy on what exactly the terminology means.
That’s not surprising, considering that blockchain sounds more like a new type of Lego piece or the name of a hot fashion house than a technology that could transform the way we make transactions online. It get's a bit complicated but, in a nutshell, blockchain is a digital method of record-keeping that makes information easily visible and accessible, which means there is no central authority required to keep track of all the stages of a transaction from start to finish.
How It Works
“Block” refers to a block of data that is created every time a specific transaction passes hands, changes in some way, or moves onto the next stage. This block is then added onto the end of the “chain” of data that holds the digital history of a given transaction.
Because the network of computers involved in that transaction all maintain copies of the full blockchain, every participant has the complete and transparent history of what’s going on — which, in theory, should make that transaction more secure (especially because it’s really hard to break off a block due to sophisticated encryption). Think of the blockchain as sort of like your old checkbook ledger (remember those?) where you itemized all the debits and credits that affected your total balance — except everyone can see and verify all those details.
So Why Does Blockchain Matter?
If this is all sounding a little Matrix-y to you, you might be curious whether blockchain will have any effect on your real life. Well, if you are one of the early adopters of the digital currency bitcoin, then you’re already using blockchain, as the technology is what enables bitcoin to change hands without requiring a central bank.
But apart from that, blockchain has the potential to be used for just about any kind of transaction; financial is the most obvious. For instance, trading stocks or other types of assets requires a lot of middlemen to execute. Blockchain could help make that process more efficient, or even eliminate the need for middlemen altogether (which might be why big banks like JPMorgan Chase and Goldman Sachs are investing in the technology).
Companies, meanwhile, could use blockchain technology to help keep track of their supply chain, such as how food goes from farm to grocery store, or how imported goods go from a manufacturing plant to being shipped halfway across the globe to landing in your local mall.
And what if you wanted to hail a driver without going through Uber or book a vacation rental without going through Airbnb? Blockchain technology, could, in theory, help you book goods or services without going through a central booking agent.
Blockchain is still probably a few years away from having a real, everyday impact on your life, but with companies like IBM and Microsoft working hard to develop the technology, the future may be here before you know it.