Sectors such as law, governance and finance are impaired by the slow rate at which they operate — full of legacy systems and overhead fees that have been around for decades. Blockchain has the power to transform such antiquated systems, and the later they wait — the longer they will have to play catch up with the early adopters of yesterday. Here’s why it’s time to do more than just read and speculate about the technology of tomorrow.

Bitcoin is a peer-to-peer solution based on blockchain technology that requires zero intermediaries and records all data on a secure distributed ledger technology.

The Defining Factors of Blockchain

Blockchain technology has been around for almost 10 years and only recently started to become impressionable in the mainstream. While much of the buzz surrounding the technology is due to Bitcoin and other cryptocurrencies, it has applications that go beyond digital cash. The technology is important because three core characteristics make it capable of subverting the world’s established systems: decentralisation, consensus algorithms, and digital signature algorithms and immutability.

1. Decentralisation

Blockchain is a technology of decentralised databases, also called distributed ledgers, and no person or entity owns or controls it. Distributed ledgers comprise a database of transactions, which all participants are entitled to access. It enables a system that is more fair and secure, and ensures that transactions are peer-to-peer — no intermediaries involved. The decentralised characteristics of blockchain are contrary to the centralised characteristics of banks and governments, which exert control over their business to ensure execution and compliance. Decentralisation means anyone who can access the ledger can contribute and authenticate data. A user cannot prevent another from participating, and anyone accessing the ledger stores a copy of it, also meaning they are responsible for participating in the approval of new transactions via the consensus algorithm.

The diagram illustrates the difference between centralised and decentralised ledgers. A decentralised ledger lacks a central authority, which typically exerts control over its processes and structures.

2. Consensus Algorithms

Consensus algorithms, or protocols, exist to achieve agreement among nodes (in this case, a node is a computer connected to a blockchain network) i.e. all participants in the blockchain network, and create an immutable record of transactions or data values. Blockchain networks self-regulate by cross-checking the transactions that elapse. Depending on the network, they will self-regulate from every 15 seconds (Ethereum) to every 10 minutes (Bitcoin), serving as a kind of “self-auditing ecosystem of a digital value”. The transactions must be authenticated by a least 51% of participants, or miners. Each group of transactions that occur over the respective time period is referred to as a block, and is connected to the blocks of transactions that precede and follow it, forming a chain, hence the eponymous name “blockchain”.

Consensus protocols have a set of rules governing how nodes communicate with each other and transmit data. The resulting blocks are guaranteed to be in a format any node can understand. Consensus protocols ensure that data is not forged and that the blockchain possesses verified ledgers of transactions — though if 51% of miners were to maliciously collaborate, it could be possible to falsely publish transactions.

There are various consensus protocols — each one specific to the blockchain network it supports.

3. Digital Signature Algorithms & Immutability

Since blockchain networks are publicly accessible, the manipulation of transactions is a warranted concern. However, blockchain’s digital signature algorithm makes it one of the most secure ledgers against manipulation, i.e. it is revision-proof. Once 51% of miners authenticate a transaction, it is uploaded to the ledger after blockchain applies the method of “hashing”. Hashing takes an input of data of arbitrary length and converts it to an output of data of fixed length. Most importantly, hashing is a one-way function. In other words, the output is irreversible and cannot be used to determine the original input value.

Blockchain uses hashing to secure each block uniquely. The hashed value of the previous block is used to calculate the hashed value of the current block and so on, making it impossible for a ledger to be changed once published. If someone were to try and change a transaction — to alter the number of Bitcoins they own, or alter the amount of money they sent to a friend — it would not be possible because the hash value for the affected block would be invalid and therefore show evidence that a transaction was tampered with. Digital signature algorithms make blockchain technology immutable, or unchangeable, ensuring transactions are 100% true as long as 51% of miners do not maliciously collaborate to falsify data values.

Reading a blockchain wouldn’t make much sense as it encodes every transaction once it is published, using the mathematical method of ‘hashing’.

Vulnerabilities in Blockchain

Despite the positive characteristics, blockchain should not be viewed as flawless because there is room for improvement. Two ongoing weaknesses present in the technology regard issues of fairness and energy use. In 2015, a mining pool, GHash.IO, became so large that they were able to exceed the 51% threshold, meaning they had the potential to falsely mine data blocks. Recognizing the threat they posed, GHash.IO released a statement voluntarily in which they described measures they would take. They promised their pool would not exceed 39.99% of the miner community and requested other mining communities to pledge the same, and also proposed the creation of a watchdog committee. GHash.IO’s handling of the event speaks to blockchain’s founding values based on trust and peer-to-peer solutions. Though they had the chance to misuse and abuse, they self-corrected —serving as an example for the whole community and living up to the vision of Satoshi Nakomoto, the founder of Bitcoin.

Another problem blockchain poses is steep energy consumption. To put the concern in perspective, Bitcoin is believed to use so much energy that at the least, it could power 90,000 homes for one year in the U.S., or at the most, the entire country of Denmark for one year. The electricity necessary for a single Bitcoin transaction could power nearly 32 homes in the U.S. for a whole day. Currently the Proof-of-Work (PoW) consensus algorithm takes such a large toll on energy. Nonetheless, the community is conscious and alternatives are being proposed.

Two are the Proof-of-Stake (PoS) and Proof-of-Authority (PoA) protocols. The PoS protocol determines the miner of a block by the stake that they hold (how many coins they possess) and the miner is rewarded in network fees. The PoA protocol relies on approved accounts, or a group of validators, to validate transactions and blocks, which continues to build a validator’s reputation. Both PoS and PoA protocols require much less computational power and have lower barriers to entry than PoW. Additionally, a renewable energy company, Soluna, is committed to solving the problem of energy usage through wind turbines on 37,000 acres of land in Morocco. Seeing that $5 billion in revenue is made on average in total by miners per year, mining is a huge market that will be forced to adapt in order to remain relevant and sustainable.

The steady increase of Bitcoin energy usage proves the increase in Bitcoin adoption rates. Between 2017 and 2018, the rates have more than doubled.

Late Adoption is Better Than No Adoption

Decentralisation, consensus algorithms, digital signature algorithms and immutability are the key characteristics that give blockchain technology the potential to subvert established ways of doing things. Decentralisation renders intermediaries obsolete. For the first time, society can imagine a world without centralised authorities misusing their power to exploit the masses. Consensus algorithms embody blockchain’s emphasis on peer-to-peer solutions, while digital signature algorithms minimize the issue of trust since ledgers are immutable. It is truly, “for the people, by the people”, as anyone can copy and paste blockchain code, build on it and try to create better tech, which is how Bitcoin Cash diverged from Bitcoin, and Ethereum Classic from Ethereum.

Despite the vulnerabilities inherent in blockchain, issues of fairness and energy use have not yet proven to be the culprits of slow adoption rates. Whenever a fancy new product broke with tradition, it was usually met with resistance. In 2007, less than 10% of the European Union mobile market owned smartphones. Today, over 70% of the European Union mobile market uses smartphones. This article from 1995 provides an hilarious account of anti-internet doubt and an out-right fear of the paradigm shift the internet would entail. The author’s unwillingness to adapt to what would become the most revolutionary tool of the 20th century is a hopeful indication that blockchain’s golden days are yet to come. The technology has the power to digitize assets, contracts, trade, and most importantly to open assets to the public that were otherwise only available to institutional or accredited investors. The opportunity to grow one’s money isn’t only available to those who have large amounts of it, and that is a radical change in the status quo.