Thursday, 1 November 2018

What is Blockchain? Part I

If you’ve not been in frozen sleep since 2016 it's likely that you’ve heard far more that you could possibly want to about something called Bitcoin, and perhaps something else called block chain. You’ve probably had it all mixed up together and you may have heard that Jamie Dimon of JP Morgan describing bitcoin as a “fraud”. He then went on to say that he would fire any employee from his firm who traded in digital currency for being “stupid.” . Of course that was famously followed up by JP Morgan Securities Ltd., and Morgan Stanley buying millions of euro of XBT note shares which track the price of BitCoin.

So you may be puzzled about the hype.  So to help clear up the confusion I thought I’d give a simple overview of what blockchain actually is. There seem to be as many different ‘expert opinions’ in the field as there are individuals so I’ve used the definitions given by the UK Government Chief Scientific Adviser in the National report on “Distributed Ledger Technology.”

So what is a Blockchain? Simply put is a way to store information. It is a type of database that takes a number of records and puts them in what is known as a block. This is rather like collating them on to a single piece paper. Each block is then connected to the next block in a process called chaining. This chaining uses a cryptographic or digital signature, which is a unique number that identifies a particular document or action.

Chaining blocks together like this allows block chains to be used like a ‘ledger’ or accounting book. The advantage over a paper one is that this type can be shared and corroborated by anyone with the appropriate permissions. In the period between 2008 and 2010 a ledger of this sort was set up and publically shared for financial transactions. This is what we call the Bitcoin BTC. There are now a large number of other ledgers of this type (or blockchains) used for a number of processes. If they are financial instruments or used for payment then they are typically called cryptocurrencies.

In the process of using blockchains copies of the ledger are normally shared. There are many ways to corroborate the accuracy of the copies of the ledger, but they are broadly known as consensus. In some cases, for example in Bitcoin, the term ‘mining’ is used for this process.

more soon!