Imagine a traditional bank that processes transactions and keeps those records on its private database. To keep its operations, the bank employs people, buys equipment, rents spaces, and has several other overhead expenses—all of which it earns back by charging their customers certain fees and interests.
A blockchain is a distributed database that can be integrated with an infinite number of applications and functions, including cryptocurrency exchange and money transfer. It can cut down on costs and processing time as it does things differently: it does away with the need for employees for daily transactions and the need to buy equipment. And it does not need an office.
While cryptocurrency trading is the most widely known use for blockchains, it’s just one of its limitless uses. In the near future, most of the things we will be interacting with online will probably be blockchain‑based. Although Ethereum and Bitcoin are currently the most prevalent blockchains in existence, there are several blockchains out there.
How does it function then?
If you’ve ever used peer‑to‑peer networks like torrent downloading software, you would see that there are “seeders” for each file. Seeders are computers that have already downloaded a file and are connected to the network, thus, becoming sources of the file themselves. So you are downloading files not just from one source computer but from several computers that have the exact same file. Similarly, blockchain records (referred to as nodes) are copied to every single computer that downloads the database of the blockchain.
In essence, a blockchain outsources its computing power to the public. Blockchains draw their processing power from all the computers connected to the network. This means that if your computer is connected to the blockchain, you are contributing to the blockchain’s processing power by processing transactions for the blockchain.
With blockchains, processing transactions and copies of the database are open to all and is not under the control of a few individuals or companies, hence the promise of decentralization. And because its records have been copied by thousands (or millions) of computers from different parts of the world, corrupting the data is very difficult and practically impossible to pull off.
Computers access blockchains from different parts of the world, a.k.a. different timezones. This means you don’t have to follow a set schedule for business hours: there will always be computers waiting to process your transactions.
In the same way that your smart phone can be integrated with apps, blockchains can be used to automate several processes in the form of decentralized applications. Theoretically, blockchains can automate entire governments. In fact, some countries have already started testing blockchains for certain services, with plans to further expand blockchain usage in governance.
There is a big future ahead for blockchains, and it is not limited to currencies. Depending on what type of business you are running, there are several ways to adapt with the new technology to your model. After all, for an entrepreneur, getting ahead could mean everything for your business. Darwinism also applies in the business world: you either get onboard or get left behind.
The author is a project manager at the New York-based science news website Futurism.
